Family life and property insurance concept. Wooden figurines representing family and hand drawing umbrella, symbol of insurance.
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While the abysmal penetration of term insurance in India is much debated and blamed on a multitude of reasons, the industry has finally woken up to an in-built deterrent - the fear of missing paying a premium and seeing the policy lapse.
Two new features introduced have addressed this issue and are being heralded as game-changers as they allow continuation of a policy despite missing out on paying a premium, ensuring uninterrupted coverage.
Here is an explainer on these features and the benefits they offer.
Premium holiday rider
For an extra premium, you can opt for this rider when buying a term plan. In the year you fail to pay your premiums, this rider kicks in to ensure your policy does not get interrupted. You have the option to resume premium payments in the upcoming year, including the premium from the missed year, without facing any extra charges or penalties, while your policy remains intact. In effect, this rider enables you to manage temporary financial hurdles without abandoning your valuable insurance coverage.
Premium delay plans
These plans have an in-built feature that do not allow the policy to lapse, even if you miss a premium, at no extra cost. Of course, you will be required to pay up the missed premium the next year, along with the premium for the current year. This is a more simple and economical way to ensure coverage remains undisturbed.
Affordability
These features have made it not so daunting to invest in insurance for fear of lapsed policies and thereby rendered term insurance more accessible and affordable. It is a step in the direction of fulfilling the Insurance Regulatory and Development Authority of India’s aspiration for ‘insurance for all’ by 2047.
Selecting the right coverage
It’s paramount to choose the right sum assured. Factors like savings, outstanding debts, expenses and family situation play a role in determining the right amount. For instance, if you want term insurance to replace your income in the event of your death, you will need a policy with a significantly higher death benefit compared to one that only covers your current liabilities.
The goal of term insurance is to maintain the same lifestyle for your family even in your absence. Costs such as your child’s education and associated care expenses for elderly parents can run significantly high. Your term insurance coverage should be based on potential expenditures, considering inflation as well.
Your age is also a key factor in deciding the sum assured in a term insurance policy. Suppose, you are young and single and have a lower risk profile and fewer liabilities. So, you should opt for the life-stage benefit rider, which allows you to increase your coverage in the future as your dependencies grow.
Term insurance also offers riders for additional layer of security, such as those for accidental disability, waiver of premium and critical illness.
(The writer is Head, Term Insurance, Policybazaar.com)