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Financial planners always advise buying a term plan for meeting your life insurance needs. It serves many purposes. For one, it is the simplest product. Also, though one does not get back any survival benefits, the premium is the lowest.
There are options amid term plans which can be used more effectively. For instance, one with reducing sum assured. Typically, such products are bought by people who have taken a home/car/personal loan. This policy ensures that if there is any mishap to the person who has bought a home or car, the outstanding is paid without putting the dependents under any financial pressure.
But such policies can also be used effectively by people who are close to retirement. A 55 to 60-year old who has met most of his/her financial goals can buy a reducing sum assured policy. Some insurance companies are even promoting it as that. Aegon-Religare’s website describes it as “a product suited for someone looking to reduce the life insurance policy expenses as their responsibilities decrease.”
The premiums, though, are exceptionally high. SBI Life Insurance offers a Decreasing Term Assurance (Family Protection) which is not linked to a loan. In case of a 55-year old non-smoker male, a 10-year decreasing sum assured policy of Rs 20 lakh cover is available for a one-time premuim of Rs 73,927. In case of E-shield Term Plan (where the sum assured is constant), the premium for a similar tenure and Rs 25 lakh cover, is Rs 16,538 annually. This works into a total premium of Rs 1,65,380 over a period of 10 years. But the cover is Rs 5 lakh more, in case of an E-shield.
If you are looking to buy a term plan at the age of 55, it is possible that one of your children has started working and is contributing to the family income. So, that could be another reason why you don't feel the need for a huge life cover. In such a case you could consider a decreasing term plan, since the premium is lower, says Prakash Praharaj, a Sebi-registered investment advisor. But before buying any term plan, it is always important to carry out a need-based analysis, he cautions.
Aegon Religare Life Insurance Company also does not link the decreasing term insurance to any loan, but it is advisable to take it only in case you have a huge liability, says Yateesh Srivastava, its chief operating officer. “Even if the premium may be lower, the tenure is not very long. It is available only for 10-15 years. Instead, someone who is above 40 years, should take a term plan online which will also offer lower premiums,'' says Srivastava. He adds that such plans are not yet very popular in India. Aegon Religare does not offer a decreasing sum assured for more than 20 years.
According to Yashish Dahiya, CEO of policybazaar.com, ideally, if you take such a policy at an advanced age, it can help you to contribute a larger amount towards your retirement or pension amount, which will be more useful if you outlive the policy. “But since most of these are captive products sold with loans, one should always compare the price with online term plans, since the cost there is lower,” he says.
