THE RIDICULOUSLY

SIMPLE GUIDE TO
TERM INSURANCE
 Version 1.1 | September 23, 2020
Copyright © 2020 by Beshak.org
All rights reserved

List of updates since Version 1.0 (September 18, 2020)

Page 17 - Table updated with additional data for age of death 99 years

Page 21 - High risk investments such as stocks"'has been changed to

'High risk investments such as equity stock options'.

Page 29 - The table for limited pay updated to the latest premium grid

Page 38 - Updating the the rights of the nominee in light of Insurance

Laws (Amendment) Act 2015.

No part of this publication text may be printed, distributed, uploaded or posted

online without the prior written permission of the publisher.

For permission requests write to the publisher at

info@beshak.org
 Thank you!
We would like to thank Gopal (Mr. K. S. Gopalakrishnan),
one of the most respected leaders in the life insurance
industry in India, for helping us strategise and guiding us
at every step of the way.

Your contributions have made this eBook way more

valuable than we could have ever imagined!

Gopal is an experienced Actuary and former CEO of Aegon Life Insurance

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 Page Jumper
This will be a long read, we admit. But, every single page is packed with useful
insights that will get you closer to an actual decision. For a deep-dive read the
entire book (60 minutes) . If you're looking for specific answers though, feel free
to jump right to the topic.

Tap on the page number below to go straight to a topic. Use to return to this page

07 11
Understanding When is the right
Term Insurance time to buy?

15 19
Choosing the How much cover
right duration do you need?

25 35
Customising your Important things
policy you should know

40 45
Frequently asked The 8
questions Commandments
of Term Insurance

46
Final word

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 Opening
Who are
Salvo
we?

Who are we?

Beshak is a research platform for users seeking informed guidance on all
things insurance. We believe that every person has the right to all the
information they need to make insurance decisions, with confidence.

Conceptualised by industry experts with several decades of diverse

experience, Beshak is a repository of useful content, guides, tips and
calculators that simplify the often complex insurance journey.

As an independent research organization we aim to make insurance

products ‘understandable’ to the individual customer, while
simultaneously helping insurance companies improve solutions in line
with their customers’ evolving needs.

Follow us @beshakIN

Get updates /BeshakOrg

Subscribe to our Newsletter

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 Who is this ebook for?

Who is this
ebook for?
You'll only buy term insurance once
(or maximum twice) in your lifetime.
It is super important for your family,
and you want to get it right.

There are many questions in your

mind, and way too many answers
out there, that will leave you
confused. In fact, according to a
recent Beshak survey, 35% of the
This book will be useful if you -
respondents admitted to purchasing
insurance policies that they still don’t
Take pride in being meticulous,
entirely understand.
and ensure that you always buy
the right stuff for your family.
Further, given the nature of term
insurance - you will be completely
Appreciate straightforward
out of the picture at the time of the
answers from experts, with no
claim. So, how do you make sure
sugarcoating
your family gets the amount, and a
sufficient amount in that - for all
Are tired of getting unconvincing
their needs? How do you know that
sales-talk to your simple
you’re making the right decision at
insurance questions
every point?

That’s where we step in.

Watch out for
We’ve designed this ebook to help RAHO BESHAK!
you take a step-by-step approach to Rare and super
RAHO
buying a term insurance policy that useful tips and
is right for you. It contains research- BESHAK! recommendations
based advice, calculators and you won't get from
examples that will simplify this anyone else!
process and help you walk the
journey with confidence.

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 Chapter One

Understanding Term Insurance

This chapter covers

What is Term Insurance?

Who should buy Term Insurance?
Examples of personas that need and need not buy term insurance

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 Understanding Term Insurance

Understanding
Term Insurance
Your family needs your love and care. What they also
need is financial security. As a provider, it is your
responsibility to plan for the worst possible scenario,
keeping in mind that that you might not be around to
fulfil every single one of their dreams, in the short-term
as well as long-term.

And, the best way to do that is by getting a Term Insurance policy. Term
Insurance is a type of life insurance that provides a lump-sum amount to your
family, in the unfortunate instance that they lose you, during the term of the
policy.

It is the easiest way to ensure that 'financial burden', doesn't come between
them and their lifestyle or big dreams. And, all you need to do is take a simple
policy.

Term Insurance is the world's most efficient and cheapest way to ensure
your family's financial security

In the event of your demise during the policy 'term', your family gets a
fixed amount of cash

If you outlive the policy, you don't get a payback. That's the only trade-
off.

Take Apart from Suicide within the first year of the RAHO
note! term, there are no causes of death excluded in
a term insurance policy.
BESHAK!

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 Understanding Term Insurance

WHO SHOULD BUY TERM INSURANCE?

You should buy a term insurance policy, if you -

Have dependents, especially non-earning family

members (such as children, a spouse, retired parents)

Haven't yet saved enough corpus for all your

family’s present and future financial needs

Have a large loan that might burden your

family, in case of your death

Have major unfinished responsibilities

like children's education, weddings etc.

Here are some examples to give a little more clarity...

SHOULD TAKE NEED NOT NEED NOT

TERM TAKE TERM TAKE TERM
INSURANCE INSURANCE INSURANCE

REHMAN SANJANA SURAJ

31 Year old, Married 29 year old, Single 33 Year old, Married

Planning children in 2 No financial No dependent
years dependents parents
Has a home loan of Parents are doctors Spouse is employed
INR 55 Lakhs and financially and financially
Retired parents independent independent
No loans

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 Understanding Term Insurance

Summing up!

You must take a term insurance policy if you've got dependents, and
have not yet accumulated enough wealth to take care of all their
financial needs - present and future.

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 Chapter Two

When is the right time to buy?

This chapter covers

How to choose the perfect time for you to buy a policy?

Thumb-rule or Dumb-rule? - Buy Early Save More
How to pick the right time to buy and make a small saving?

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 When is the right time to buy?

When is the right

time to buy?
The right time to buy term insurance is as soon as you have financial dependents
or take a large financial loan.

Well, who counts as a financial dependent?

A financial dependent is anyone who

depends on your earnings, for their
lifestyle. They could be your -
Spouse
Children (present and planned)
Parents

As well as -
Other earning members, like a spouse with
whom, you have taken a joint loan.

Watch out for signs like -

You start paying monthly and yearly bills

You get married or become a parent
You take a large house loan

HOW DOES - BUY EARLY, SAVE MORE - WORK?

The premium is charged based on the age at which you enter the policy, and
then this rate remains constant, throughout the tenure. The general rule of
thumb prevalent in the market is that you buy it as early as possible, to keep
life-long premiums low. Let's look at an example.

Say, you want to buy a policy for a 1 crore cover, for a term until you're 65.
Here's the premium you would pay, adjusted for inflation, depending on when
you begin the policy.

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 When is the right time to buy?

Aggregate Cashflow
Age you Premium No. of annual
Premium paid (factoring an annual
start (Example) premiums
during the term 6% inflation)

25 10000
10,000 40 4,00,000 1,59,000

30 12,000 35 4,20,000 1,84,000

35 15000
15,000 30 4,50,000 2,19,000

As you can see, the savings on the aggregate premium paid, are pretty marginal
to justify an early purchase. However, if you consider inflation or factor the time-
value of money, you realise that buying early could actually save you a
considerable amount of money over time.

Having said that, a term insurance policy is only meaningful

when you have dependents, or plan to have them in the near RAHO
Remember!
future. If you are sure about not having dependents anytime BESHAK!
soon, you can skip it.

BUT REMEMBER...
As you grow old, the chances of contracting a lifestyle disease, like diabetes or
high cholesterol rise significantly. These changes could mean much higher
premiums, or even policy rejection. Keep in mind...

Policies could get

Annual premiums
rejected or premiums
usually rise by around
raised by 50-100%, if
4-8% when you cross
you develop a lifestyle
your birthday.
disease

If you're going to be 35 soon, and intend to have dependents in the future - NOW
might be an ultimate deadline to get any meaningful advantage from a term
insurance policy.

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 When is the right time to buy?

If you have your birthday in the next few months, do all your
research and buy the policy before it. It will give you a
ready-made premium reminder, as well as a decent saving for
being a year younger!
Here's a tip!

Summing up!

Anyone who depends on your income for their current and future
lifestyle is a financial dependent - and term insurance will help them
retain that lifestyle, even after you die.
Buying a policy early might be cheaper, but you don't need it if you
don't have or plan to have dependents in the near future.

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 Chapter Three

Choosing the policy duration

This chapter covers

What does it mean to become financially free?

Do ultra long-term policies make sense?
How to leave a financial legacy for your family through term
insurance?

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 Choosing the policy duration

Choosing the
policy duration

You only need a term insurance policy from

the point in life when you have financial
dependents, to the point when you become
financially free.

But, what does it mean to 'become

financially free'?

Becoming financially-free means different things to different people. But,

generally here are some indications.

You have built a substantial corpus, that will provide passive income for you
and your family's everyday needs
You have fulfilled your major financial responsibilities - children's education,
home loans, children's weddings etc.
Your kids have become financially independent, and wouldn't depend on you
for any of their monetary needs or big dreams

Once these happen, you can stop your term insurance policy. This is the
traditional thought process. But, there is another school of thought as well.

TERM INSURANCES WITH COVER TILL AGE 99

Ultra long-term policies with a maturity age of 85 and even 99 years are often
promoted as a cost-efficient way of leaving a financial legacy for your family.

As it is less probable that one would live so long, these durations ensure a
'guaranteed return' to your family, so to speak. But, do they make sense for
everyone? Let's crunch some numbers.

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 Choosing the policy duration

Say Mr. Kumar decides to buy term insurance of INR 1 Crore when he's 30
years old with a term until 99 years. Let's see how the returns vary depending
on when Mr. Kumar passes away.

Yearly Age at No. of Total paid Claim %Return

Pay Type death till death received generated
Premium years paid

Regular ₹ 28,176 85 yrs 56 ₹ 15,77,856 ₹ 1 cr 5.42 %

Regular ₹ 28,176 65 yrs 36 ₹ 10,14,336 ₹ 1 cr 10.30 %

Limited
₹ 35,104 86 yrs 30 ₹10,53,120 ₹ 1 cr 5.33 %
(30 years)
Limited
₹ 80,664 70 yrs 10 ₹ 8,06,640 ₹ 1 cr 7.08 %
(10 years)
Limited
₹ 80,664 99 yrs 10 ₹ 8,06,640 ₹ 1 cr 3.90 %
(10 years)

From the example above, if Mr. Kumar takes

a policy with a cover up to age 99 and
passes away at the age of 65 - the
investment could bear an interest as high as
10.3%. On the other hand, even if his death
happens at the age of 99 just before the
cover ends, the premiums get an annual
tax-free interest of 3.9%.

Of course, the catch is if he survives that

period, he won't get any payback. But
surely, he won't complain about a
remarkably long life! :)

So, here's some unconventional 'Beshak'

advice.

If you are looking at leaving a financial legacy for your

family that makes a 4% annual tax-free interest for a
term as long as 50 years, an ultra-long-term policy RAHO
might be a good strategy. BESHAK!
If this doesn't really excite you, you should take a pass.

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 Choosing the policy duration

Summing up!

You become financially free once you don't have any dependents (or)
have created enough wealth to support all your family's needs - and
then, you do not need a term insurance policy anymore.
Ultra long-term policies only make sense if you're excited about
getting a 4% annual tax-free interest for 50 years. Otherwise, skip
them.

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 Chapter Four

How much cover do you need?

This chapter covers

Detailed calculators of the Living Expenses, Big Dreams Fund and

Major Liabilities.
Risk factors to estimate how useful your existing funds would be.
Example for calculating the actual cover a family would need.

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 How much cover do you need?

How much cover do you need?

'20x your yearly income' is the most commonly

recommended thumb-rule formula for calculating the
cover.

But, like every thumb rule this one too has its flaws,
and you've got to be extra careful. Imagine the 'duh'
on your wife's face, if the amount she gets hardly
covers the family's needs or your pending liabilities?

So, get yourself some coffee, a few sheets of paper, your favorite pen - and sneak
into that cozy corner of your house. Let's do this the 'Beshak' way!

Important Note: For the sake of this calculation, we are considering a scenario
that death happens one day after the policy is taken out.

First, calculate the Living Expenses Corpus...

This is the corpus you'll need to create, to ensure that your family receives a
passive income, to meet their day-to-day expenses.

For this, take stock of all your monthly expenses as well as annual expenses like
health insurance, school fees, etc. You can exclude EMIs for Home or Car Loan
from this calculation, as these will be taken care of, later.

Divide this amount by the rate of interest you expect. For ease, you can consider
this as 3%, a typical FD interest after cutting taxes.

Total Living Expenses This is the

with current lifestyle ÷ 3% = Living Expenses
Corpus
Rents Divide this
School fees amount by the
Monthly bills rate of interest
Maid, driver you expect
salaries
Household
expenses

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 How much cover do you need?

Then, we get to the Big Dreams Fund...

This fund ensures all the big dreams your family come true. Your spouse gets to
take a sabbatical and do that expensive MBA program. Your children have the
resources to pick the best universities in the world they want to study at and
have a big fat destination wedding.

Spouse's This is the Big

Children's Wedding
higher + education + expenses = Dreams Fund
education

Now, calculate your Major Liabilities fund...

You don't want your family to be burdened by any large loans. Your term life
insurance can unburden them, so they live a debt-free life. Here you add up all
the big loans - especially home loans. Think this through carefully, and
remember to include any business or personal loans - and even those where
you are a personal guarantor.

Other large This is the Major

Home loans + payments + Guarantees = Liabilities Fund

And finally, take a look at your Existing Funds

Take a complete stock of the existing funds you hold. This is the money or
financial assets that you currently have - Fixed deposits, Mutual Funds, Equity
shares, Cash, Cash in the bank, etc. But, before you add them up we need to
value them based on their risk and utility.

For instance, value all the equity shares, equity-linked investments

conservatively at 50% of their current value. From a utility perspective, value
family gold and the property you live in at 0% - as you don't want these to be
sold to square off your debts or pay for your family's future expenses.

High risk investments such as equity stock options are also considered at zero
value - so, anything that becomes available is a welcome bonus!

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 How much cover do you need?

Accounting for this disparity, through a 'risk-factor', prepares you for the
worst-case scenario. Here's how you go about it.

Sum up all your Risk factors

investments, savings etc.
Savings in cash, FDs, SB A/C 100%
Categorize them into types
of assets. Equity shares 50%

Gold, residential property 0%

Apply the following factors
on these assets. Equity stock options 0%

This is your
Sum up all these re-evaluated
investments = Existing Funds

Once you have these calculations done, your required sum-insured can be
calculated as follows.

SUM INSURED
=

Living
expenses
fund
To keep your +
Major
expenses
fund
To pay off big, +
Major
liabilities
fund
To pay off any
_ Existing Funds

Re-evaluated
family's current expected loans and with risk
lifestyle intact expenses liabilities factors

Rents Education Home loans Savings in cash

Groceries and (Spouse and Other large & FDs
monthly kids) loans Equity
supplies Weddings and Guaranteer on investments
Monthly bills celebrations business or Gold and
personal loans residential
Exclude property
EMI for self- Stock options
occupied house and high risk
investments

ADD ADD ADD MINUS

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 How much cover do you need?

Let’s look at an example of Manish, a 31 year old software engineer, who

draws a yearly salary of 20 Lakh rupees. This is how his finances look, at this
moment.

His current living expenses are

His major liabilities include -
Rs. 75000 a month. (Excluding
Home Loan: Rs. 75 Lakhs
EMIs on loans)
Personal Loan: Rs. 15 Lakhs
---------------------------------
---------------------------------
---
---
The major expenses, he is
He has the following existing
expecting in the future are -
funds -
Savings - Rs. 5 Lakhs
Wife planning to do an
MF - Rs. 40 Lakhs
MBA in a premier institute
FD - Rs. 5 Lakhs
in 2 years - Rs. 20 Lakhs.
Gold - Rs. 5 Lakhs
Kid's Education - 50 Lakhs.
House - Rs. 1.2 Crores
Kid's wedding - 50 Lakhs

Let’s calculate the life cover required.

Money he owes... Money he has...

Living Expense Fund Savings + FDs @100%

= (75000 X 12) ÷ 3% =5 L + 5 L
= 3 Crores = 10 Lakhs

Major expenses fund Mutual Funds @ 50%

= 20 L + 50 L + 50 L =40 L X 50%
= 1.2 Crores = 20 Lakhs

Major Liabilities Fund Gold, House @ 0%

= 75 L + 15 L = (1.25 Crores) X0%
= 90 Lakhs = 0 Rupees

Total Liabilities Total Existing Funds

= 5.1 Crores = 30 Lakhs

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 How much cover do you need?

So, the required cover for Manish is the difference between this liabilities and his
existing funds. That is - 4.8 Crore Rupees

If he went by the usual calculation of 20X his yearly salary, he would only take a
cover of 20 X 20 Lakhs, that is - 4 Crore Rupees, leaving his family without
sufficient cover, a whopping 80 lakhs short. Further, in this calculation, we haven't
factored inflation. If you have to - you should factor at least 2.5X this coverage
amount or buy an increasing cover that takes your cover systematically to 2X.

Note: If you have any other insurance cover, you can subtract that amount from
the cover needed.

Make sure that you review your cover amount every few years, to ensure you
account for any new, unplanned responsibilities you take up.

This is the most meticulous and scientific way to RAHO

calculate the exact amount that your family needs -
instead of depending on a random figure. BESHAK!

Maintain and monitor your expenses, financial goals, investments

and liabilities in your personal financial spreadsheet. Take your
partner through this sheet and share access with them.
Here's a tip!

Summing up!

The 20x yearly income thumb-rule could leave your family

insufficiently covered. So, it's recommended that you calculate a
required cover comprehensively.
Add the Living Expenses Fund, the Big Dreams Fund and the Major
Liabilities Fund. From this total, subtract the risk-factored Existing
Funds. This gives you the exact amount you'll need to cover for.

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 Chapter Five

Customizing your policy

This chapter covers

How to choose the right payment frequency, payout options and pay
model?
What are riders and which ones are the most useful?
What are increasing covers and are they useful?
'Beshak' tips on how to get the most out of every customization

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 Customizing your policy

Customizing your policy

Most modern Term Insurance plans allow you to customize the policy to suit your
personal preferences. Here are the top categories that you should take note of:

Payment Frequency Payout Options Pay model Riders

Payment Frequency

Most insurers will offer you a choice between payment

modes based on your convenience, at a very low or no
difference in the final effective amount you pay.

You can change your payment frequency at the time of a

renewal.

To avoid large annual payments, you could choose monthly payments. But,
ensure that you strictly set up auto-debit or standing instructions so your
premiums are paid on time, and your policy remains active.

Put your the standing instructions on a bank account, instead of

credit/ debit cards, to avoid delays and lapses when they expire.
Keep an eye out for any failed payments, and pay immediately.
Here's a tip!

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 Customizing your policy

Payout Options
Duration

Insurance plans offer multiple options by which

your nominee can receive the claim payout. This
is one of the most important customizations, that
is usually missed. It basically allows you to
configure how your family receives the money.

When you're not around anymore, your family

will suddenly have a huge balance in their bank
account, and may not be prepared to deal with
that change. There have been thousands of
cases, where gullible family members were
persuaded to take actions that weren't exactly in
their best interest.

Hence, depending on your nominee's financial aptitude, you should decide on an

option of spreading out the payout into parts of a fixed amount and monthly
payouts across the years.

Here are the options usually available:

Lump Sum is the option where the entire cover is credited to the nominee’s
bank account.

Lump Sum with Monthly Income is an option where a fixed amount is

credited on death, and the remaining amount is credited every month over a
period of 10 to 15 years

Only Income is an option where the claim is paid out in monthly payouts over
a period of 10 to 15 years.

If your spouse or dependent is not financially well-versed, it

would make sense to opt for a Lump Sum + Income Option.
Here's a tip!

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 Customizing your policy

Premium Pay model

Duration

Term Insurance usually requires you to pay

premiums every year until the end of the policy
term. However, there are alternative ways to
pay-off the premiums in shorter and faster
instalments.

Limited Pay is one such option that allows you

to speed up your premiums in bigger
instalments, quickly - while enjoying the cover
for a longer duration.

Limited Pay is useful if you -

Want to get the payment liability off your chest quickly

Have, or expect to have unpredictable income in the future
Want to take an ultra long-term cover, beyond retirement age

Does Limited Pay save money?

The usual argument is that the sum of the premiums you pay in Limited Pay
is lower than the aggregate premium you pay in the case of a regular
payment term. But this calculation does not take into account the 'time
value of money'.

When we calculate the Net Present Value of the premium paid in both the
cases, the answer could vary depending on the insurer and the payment-
term.

Let us explain with an example.

Raman is a Male, 30 year old, non-smoker who is buying a Rs. 1 Crore policy
until age 75. Here is the comparison of present value of premiums he will
pay in both cases - Limited pay and Regular pay.

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 Customizing your policy

No. of years, Yearly Premium NPV of full

premiums are paid amount premium @ 6%
REGULAR

Full term
PAY

19,932 3,26,549
(45 years)

30 years 20,672 3,01,619

LIMITED
PAY

10 years 38,904 3,03,517

5 years 76,326 3,40,803

In this example, you’ll see that the Limited Pay option is definitely better
compared to Regular Pay. However, Raman only gets the maximum
benefit, if he chooses the 30 year pay option.

The bottomline is -

Use the Limited Pay option if it is a strong preference

based on your financial life. For example, if you think RAHO
your business income can be very erratic in the future. BESHAK!
Do not blindly follow any thumb-rules. Ask your
advisor to calculate NPV on the cash outlays before
taking a decision.

Choosing riders

What are riders?

Riders are provisions that give you an option to gain
additional benefits, for your existing cover. With a
minor extra cost, they offer ‘ready-made’ extensions
for special circumstances.

Riders help you make quick and instant decisions in

terms of finishing your purchase decision. Here are
four common types of riders in the market.

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 Customizing your policy

1. Critical Illness Benefit

In today's fast-paced, stressful life the

risk of being struck by a critical illness is
very real. Even individuals with an active
lifestyle cannot be a 100% sure that
they wouldn't contract a serious ailment
that will drain them physically,
emotionally and financially.

Further, advanced medical science will ensure many of us are able to live even
after suffering from a critical illness, albeit with high healthcare expenses and low
or no income.

So, you will likely be left with large and recurring hospital bills, and an impaired
means of earning for your family. A Critical Illness rider helps cover such a
financial loss by paying a fixed cash benefit, in case you are diagnosed with any
serious illness listed in the policy.

Most important: This is easy to miss. Be careful about the Type of Rider
you choose. If the rider is an 'accelerated cover', it is not a separate
cover. It merely pays you an advance out from your base term life cover
amount.

Finally, remember such riders will usually be a tad inferior to a specialised

standalone critical illness cover that will cover early-stage illnesses as well.
They might even charge an almost similar add-on cost, as the premium of a
standalone Critical Illness cover.

Another critical thing to remember is to not get swayed by the sheer number of
illnesses covered.

Many lists of critical illnesses will expand the ailments into sub-categories
to show higher numbers of illnesses.

Experts say that the top 6 illnesses cover more than 90% of the critical
illness that occurs. Many on the list could be rare diseases that have very
low probability.

Check the list provided by your insurer carefully, before signing up for a critical
illness rider.

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 Customizing your policy

Illnesses covered
Ensure at least the most
common conditions like Cancer,
Type of rider
Heart conditions, Paralysis,
Ask whether the cover is a
Stroke, Kidney Failure, etc. are
separate sum insured or an
covered
accelerated cover( which is
merely an advance payment
from your main term insurance
Age Limit cover)
Check the age until when this
cover applies

What's the 'Beshak' recommendation?

Do not buy an 'accelerated' critical illness cover. Instead choose a standalone

critical illness policy that will provide wider coverage.
Do not get swayed by numbers. Check the detailed list of illnesses, and only
purchase it if the list is satisfactory.

Riders are often trade-offs between the convenience of an instant purchase,

and the extra effort/ time that another detailed plan will demand. Choose
wisely.

2. Accidental death benefit rider

Accidental Death Benefit usually pays out an additional death benefit in case of
accidental death.

On comparison, we found that an additional full term insurance cover is only

marginally costlier than a rider. However, this cover can be useful for people
who are unable to get a large cover, due to eligibility issues. Otherwise, take a
pass.

What's the 'Beshak' recommendation?

If you are eligible, just take a separate, additional cover and skip the rider.

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 Customizing your policy

3. Accidental disability rider

Financial cover for the risk of disability is an

important cover one must consider.
Disability, similar to critical illness, can cause
more financial havoc than even the early
death of a breadwinner.

The cost of accidental disability starts from

the healthcare cost of treating the injury,
maintenance, modifications of the house/ car,
to the loss or decrease in future means of
earning. This rider provides a fixed cash
benefit to cover all these costs.

This is a very serious risk that requires specialized financial protection. A rider
will provide a quick short-cut cover, but may not solve the entire problem. For
instance, while most disability riders cover permanent total disability due to
an accident, a standalone comprehensive personal accident cover will provide
a specialized, comprehensive cover at nearly the same premium.

What's the 'Beshak' recommendation?

Don't take a short-cut. Instead, look for a specialized cover, for your own
financial security as well as your family's.

4. Waiver of premium on critical illness

These are low-cost add-ons that will waive the burden of paying your
future term insurance premiums in case you are diagnosed with a listed
critical illness or are permanently disabled due to an accident.

'What's the Beshak' recommendation?

This is a no-brainer rider, and you can consider buying it. These riders may have
a separate maximum duration of cover, go for the maximum cover available at
your age.

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 Customizing your policy

Increasing Covers, and when should you choose them?

During the course of your life, your income,

expenses, and liabilities are likely to rise as
you grow older, get married, become a
parent and take up more financial
responsibilities.

As a result, your term insurance will require

at least two upgrades if you begin before the
age of 35.

For this, you've got two options. Either a Manual milestone-based approach, or
an Automatic increasing cover. Here is how the two types compare.

Automatic
Feature Manual Upgrades
Increasing Cover

Manually take a fresh policy to The policy systematically

Type of upgrade increase cover, as upgrades, until a maximum
responsibilities increase cover limit.

Medical tests will be needed to

No new medical tests would
Medical tests rule out any new chronic
be necessary
illnesses

Policy rejection There are chances of rejection, There is no risk of the upgrade
during the upgrade being rejected

Cost Are generally expensive Are compartively cheaper

What's the 'Beshak' recommendation?

Every insurance plan can have different conditions with RAHO

respect to an Increasing Cover. Go for an option that BESHAK!
systematically upgrades your cover to at least 2X before
the end of the policy term. The increasing cover option is
clearly, a no-brainer!

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 Customizing your policy

Increasing Covers, and when should you choose them?

Summing up!

You'll need to customise the payment frequency, payout options, pay

model and riders to arrive at a tailored plan that fits all your needs.
Riders are short-cuts to comprehensive plans. Skip them and take
dedicated covers for all additional needs.
The only rider exception is the 'waiver of premium on critical illness',
which you can consider.
Increasing covers are a fantastic way to stay sufficiently covered
throughout your lifetime. Always choose them.

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 Chapter Six

Important things you should know

This chapter covers

Thumb-rule or Dumb-rule? : Claim Settlement Ratio

The most important thing to ensure your family gets a payout
The importance of assigning a Nominee
Why is the Married Woman's Property Act important?

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 Important things you should know

Important things you

should know
Here are some other things you should be
aware of, before making an informed
purchase decision.

The myth and fuss around Claim Settlement Ratio

The claim settlement ratio basically measures the

number of claims an insurance company has paid,
against the number of claims made by the
nominees/beneficiaries. It is denoted in the form of a
percentage.

For example, if an insurer has a claim settlement ratio of approximately 98%,

this means that they have settled 98 claims out of every 100 claims received.
However, this does not really represent the actual claim experience.

IMPORTANT: A good insurer has strong financial control, and

will decline fraudulent or invalid claims, to sustain themselves RAHO
for another 30 years and pay your claim. BESHAK!

Remember -

A low claim settlement

ratio doesn't mean that A high claim settlement
the insurer has a bad ratio doesn't guarantee a
claims experience claim settlement for you

The only thing that will guarantee that your family is paid the claim amount, is a
diligently filled form, giving every specific detail with utmost accuracy. (more
about this in the next section...)

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 Important things you should know

Ensuring a payout begins with filling the form right

The proposal form is the basis on which an insurer is giving you the insurance
cover, and hence it is by far, the most important document to ensure that your
family has a hassle-free claims experience.

Ideally, you need to understand the claim settlement process before you fill the
proposal form. When you buy the policy, the insurer may be cool about your
declarations and issue the policy, but each declaration you make is scrutinised in
detail at the time of claims.

They will want to check whether you made the right declarations, whether any
information you shared was false or inaccurate, especially in cases of an early
death. Just keep the following in mind.

In case you have any chronic

Fill the proposal form
health condition, insurers are
yourself. Ensure you declare
likely to request for an
complete information for
additional premium (could go
everything it asks - your
as high as 50% more) over
profile, health conditions,
the standard premiums for a
family medical history and
healthy individual.
more.

A term insurance cover is super important - all the more so, if you have a
health condition, so go ahead and pay the price.

If you follow all guidelines and declare all information to

the best of your knowledge, insurers are bound to pay out RAHO
the benefit to your family. BESHAK!

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 Important things you should know

Appointing a Nominee

You will need to identify a nominee or nominees, for each policy you buy and
take them through the claims settlement process, so they're well informed.

As per Section 39 of the Insurance Laws (Amendment) Act 2015, the

selected nominees (amongst parents, spouses or children) are the ultimate
beneficiaries of the insurance claim money. This ensures that the money
goes to a specific recipient as per your choice, when multiple legal heirs are
present.

In addition to appointing nominees, it is recommended that you create a will

to account for the following scenarios.

If you want to nominate someone other than a parent, child, or spouse.

In the unfortunate case that all your nominees pass away, the payment
would be made as per the will.

Ensuring that your family gets the claim money (and no one else)

In the absence of a will, there is a risk that

your wife and children might not receive
the payout directly. Other family members
might claim to be legal heirs (especially in
joint families), or there might be personal
loans/ liabilities that need to be paid off
before your family receives any money.

To avoid this, you can purchase the policy

under the Married Women’s Property Act
(MWP).

How does it work?

The MWP act can provide the married woman and her children, exclusive rights to
the payout amount of a term insurance policy. This can be done by signing an
addendum attached to the proposal form.

In the absence of this, creditors will have the first right to access funds from your
term insurance payout - on your demise.

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 Important things you should know

Take MWP can only be done at the time of taking the policy, and NEVER
note! later. So, if you are married be sure to opt for it.

With the MWP addendum attached to your term insurance policy, your family
would be -

Secured permanently: Once this addendum is

submitted, even the insured person cannot assign or
change details - even if there's a divorce. RAHO
BESHAK!
Assured payment: Policy payouts are insulated from
the liabilities of the insured person, so the wife and
children will definitely get the benefit.

Summing up!

The claim settlement ratio is not the best way to judge the quality of
your insurer.
Always fill the proposal form yourself, and declare all information
accurately and completely. This will help your family have a smooth
claims process.
Appoint a nominee (or multiple nominees) for every single policy you
take
If married, sign the MWPA addendum, while taking the policy to
ensure your wife and children are assured the claim amount.

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 Frequently Asked
Questions

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 FAQs

Frequently Asked Questions

Here's a list of some common questions that we've heard over the years.

Can I upgrade my existing Term Insurance policy?

No, you cannot upgrade your term insurance policy.

You will need to take a fresh policy when you want to upgrade your
cover, and go through the same process (or even a more detailed
process), given that you would have grown older. We recommend the
following:

Ensure you buy adequate cover when you start.

Opt for an increasing cover option that systematically upgrades your

cover by at least 2X by the end of your term.

What are the reasons for the policy to get rejected?

Life insurance companies provide Term Insurance after evaluating three

important things:

Quality of life (through indicators like city, educational qualifications,

occupation, etc.)
Health, lifestyle, habits
Income

If you turn out to be a high risk in any of these categories, your proposal
may be declined or premium increased.

In addition to this, if you've made any representations that cannot be

validated through documentary proof, the insurer might decline your
policy proposal.

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 FAQs

Should I choose the cheapest policy, or go for a brand?

Once you choose a specific product configuration, where you buy from
doesn’t really matter. Every insurance company is legitimate and
governed by IRDAI regulations, and as long as you have been
transparent in your declarations, your family will get the claim.

Important Note: A new insurance law (Sec. 45) guarantees that

your claims cannot be rejected for any reason, after an initial
waiting period of 3 years. (as long as you pay your premiums on
time)

After getting the policy do I need to update it in case of health

issues, smoking etc.?

No there is no requirement as per the conditions of any policy that

requires you to inform the insurer about any such change after you have
bought the policy.

Important Note: It is your duty to inform the insurer of any changes in

your declarations, during the period between submitting the proposal
form and receiving the policy document.

Should I buy two policies just to diversify my cover across two

insurance companies?

It doesn’t really matter. If this is the first time you are buying a cover, a
single policy to cover your entire eligibility is better. A few years later,
when you are buying a new policy to upgrade the cover you can opt for a
different insurance company. The de-risking is actually redundant.

On the flipside however, your family will have to go through the pain of
dealing with, doing paperwork for and following up with - two insurance
companies instead of one.

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 FAQs

What are the reasons for the claims to get rejected?

Claims can get rejected when you knowingly provide an incorrect/

misleading declaration in the proposal form especially with regards to
health, lifestyle, medical history, family medical history, income, etc. This
would include anything that muddles the insurer's view with respect to
the risk they are covering. Always fill the proposal form yourself and not
depend on any advisor or seller.

Protection u/s 45: Section 45 in the Insurance Act protects the customer
with better visibility on receiving claims payment in the long run.

With this clause, insurers cannot investigate claims for misrepresentation

or omission after the policy has completed 3 years. Hence it's almost
guaranteed that once you have completed three years of the policy term,
your family will get the payout, as long as you pay your premiums on
time.

Do I have to inform the company about any health conditions?

Before you get your policy, you must clearly and accurately describe all
your health conditions.

If you have a chronic health condition, insurers are likely to request

for an additional premium over and above the standard premiums
calculated for a healthy individual. (it is safe to assume a 50% higher
premium)

A term insurance cover is super important, and more important if you

have a health condition, so go ahead and pay the price.

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 FAQs

What should I do if the insurance company closes down?

IRDAI requires every Insurance company to maintain a solvency ratio

which measures the capability of the insurer to pay claims.

This is reported every quarter. IRDAI monitors this and also pulls
insurance companies who aren't able to achieve it. This ensures that
every insurer has enough reserves to pay every claim they receive.

In case an insurance company folds up and closes down, IRDAI usually

finds an existing insurance company with strong financials to buy that
company over.

This ensures that you, the customer is financially protected always. One
of the core objectives of IRDAI is protecting policyholders' or customers'
interests.

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 The 8 Commandments Of A Term Insurance Decision

The 8 Commandments Of
A Term Insurance Decision
Buy Term
Don't buy it until you
Insurance if you
have dependents, or have
have financial
definite plans in the near
dependents, a
future.
large loan,
unfinished
responsibilities
etc.
Skip riders and go
for separate
A '20x annual income' thumb- specialised
rule might not always work for covers. Check
cover calculation. Account for Beshak.org for
all your living expenses, End your policy options.
liabilities, financial as soon as you
commitments and existing accumulate
wealth to calculate the cover enough wealth
you need. Do the math! for your and your
family's future
expenses.

Go for the increasing cover

option, for a hassle-free
and systematic upgrade of
your term insurance cover.

Choose the right claim payout

option, based on your family's
If married and male, opt for
comfort and financial
the Married Women's
knowledge. If your spouse is
Property Act when you buy
not financially well-versed,
the policy.
choose the 'lump-sum +
income' option.

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 Final Word

Final Word
There is no point over-analyzing.

This is a simple cover. Your family is likely to regret having no cover at all,
instead of a moderately good one. Trying to get everything right is only going
to delay your decision, and in this case that can be very risky.

Fix a reasonable deadline to compare, research, question, and shortlist a couple

of options. Then just pick one.

Thank you for reading. Do share this with friends and family.
Good luck, and have a great life ahead!

- Team Beshak

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 Image Credits

Resources from Freepik have been used in the design of

the following pages -
4

Illustrations by Freepik Stories have been used in the

design of the following pages -
5, 6, 7, 8, 9, 11, 12, 15, 16, 17, 19, 20, 25, 27, 28, 29,
30, 32, 33, 35, 36 and 38