5 Steps to tame the ‘Term Plan’

We all get to learn from various sources that the best way to cover the economic risk of ‘dying too early’, is to buy a Term Plan.

Yet so many other plans are being sold on premise of savings. Many a times I have heard people claiming that they were told by the Insurance Seller that the life cover is free and the major purpose of the plan is to increase your savings. Of course the very fact that so many people subscribe to ‘with profits’ policies explains the kind of financial literacy we have in the country. There must be some good unit linked plans but since the time, the commissions have been lowered, the sales for endowment plans have substantially gone up. ‘Endow’ means ‘to give’ and they live up to their name as the client is the only one who gives here.

On the other hand, people who buy Term Plans and with more and more buying online, it is important to note the following 5 points:

1. Tell the truth, the complete one: While you are applying for a term plan remember to disclose all facts asked, and some important ones even if not asked. For e.g. I had a Lung Infection (technically it was Tuberculosis without the cough) in 2014; and in 2015 I had applied for a term plan. While filling the form I thoroughly went through the medical questionnaire and filled all details including my stay at the hospital, medicines I consumed for 6 months, my reports, etc. On the Financial disclosures, I mentioned each and every policy I had and also the family medical history. It is important to understand that the onus of declaring the facts lies with the policy holder and therefore do not take this lightly.
2. Keep your communications in record: All the communications, forms, etc that you exchange with the insurance company, should be kept in records (hard copy or scan). These should be filed or put in a computer folder and the details should be shared with reliable family members or friends. The repository account (a kind of demat account for Insurance Policies, is not a bad idea). This allows you to have a digital policy and get rid of your policy file, which at times can be misplaced.
3. Term Plans should be bought with the longest tenure possible: People generally buy it till age 60, believing all their liabilities will be over by then and therefore they don’t need it. There are two views against it, one is the fact that since the premium will be negligible portion of the sum assured, it makes sense to continue and the sum assured can be passed on as a legacy after your death. Secondly, please don’t forget your spouse, kids are not the only responsibility.
4. Keep a track of your premium payment: My experience has been that one should not let the reminders be the onus of the Insurance Company. Some companies are least bothered about it (don’t know whether it is purposely for term Plans or a service mindset problem). Remember, nothing binds these Insurance companies legally, to remind you of your Insurance Premium. If you have a Google account, use the google calendar and set yearly reminders. Also do remember that the premium should always be paid before the due date normally. There is a 30 day grace period but best is not to use the grace period. In case there is an eventuality after the due date and in the grace period, the policy claim can land in a ‘less clarity zone’ and it is better to avoid it.
5. Make notes for the family: The very reason you bought a term plan was to insure your family’s financial future. Imagine a situation, where you are no more and your family has to go and file a claim. Now make notes of steps to follow, mention name of friends who can help, write clearly that a fee should be paid (this will get the best help for your family), and keep a check on the fact that nominee details are updated and no spelling mistake is there. These hygiene checks will help you surely.

I hope the above will help you in managing your Term Plans well. In case you need any further clarity, please visit my page on FB, called ‘moneysabha’.

~ Anil