Best Life Insurance policy in India-How to choose?

Life Insurance is a product which in India sold forcefully but not bought with proper planning. You receive plenty of calls from your neighbor, relative, friend or friend’s friend who turned out to be insurance agent. After few calls you buy that product without understanding the proper need.

So which is the best life insurance policy in India?

Best Life Insurance

Is there any single product which we can say the best product and will be suitable to all buyers (not investors)? No…because each buyer’s need is different, hence we can’t say that a single product from any of XYZ insurance company will be best. Having said that, the next question is, why you need life insurance in your life? As the name itself suggest the meaning, we must buy the life insurance ONLY to protect our life but not for investing. But sadly 99% of Indian buyers still feel that Life Insurance is investment and tax saving tool. This is the mindset created by agents since long and by our parents. Because in olden days we don’t have any options like mutual funds or bonds. Only options of investments are Post Office Schemes, Bank FDs or Life Insurance products.

Before proceeding further, let us first understand the different variants of products available in India.

1) Term Insurance-These are pure Insurance plans where you are paying only for the cost your insurance company ready to take your life risk. This is a must for all who have financial dependents. But sadly no insurance company or agent ready to push this product. Do you know the reason? It is simple, if he sell you any traditional endowment plan (which combines Insurance with Investment) then your premium will be higher and he earns more. Instead if he sell term insurance then premium will be few thousands of rupees and obviously his earning will also be less. Currently few Insurance companies (except LIC) offering online term plans which are claimed to be cheapest because there will be no middlemen. But still there are few loopholes which I discussed here “Online Term Plans-Are they fare priced?“.

Let us simplify the meaning of term insurance. Suppose your age is 30 years and you opt for Rs.1 Cr term insurance for the tenure of 30 years then if you die during this 30 years period, your nominee will receive Rs.1 Cr. But if you survive till policy period then you will not receive anything from this plan. Only because of this reason that if one survive till the policy period then there will be no return from this plan, lot of people stay away from this plan, even this is the trick life insurance agent play in restricting you to buy this wonderful product. But think few seconds what will be your dependents financial health if you die today?

I listed the current available term insurance plans available in India. This list will be useful for you in selecting the suitable product. You can read the full article here at “Best Term Insurance plans in India (After 1st Jan 2014)“.

2) Endowment Plans-These are the plans which combine Insurance with Investment. Suppose you buy such products by paying a yearly premium of Rs.100 then some % of the paid premium will be towards the life risk premium and left out premium amount will be invested in any secured investments. If insured die during policy period then his nominee will receive SA+Bonus (till that period) otherwise at the end of maturity usually SA+Bonus will be payable for you. As these products combine both insurance with investment, even if you are paying hefty premium your life is not fully insured (ideal insurance coverage should be around 15 times of your yearly income+any current liability) and return from such policies will be around 7%, which in no way fulfill neither insurance need nor investment need.

Hence you MUST avoid such plans. There are again different variants in such traditional plans like money back plans or whole life plans. But the basic idea is same-These plans combine Insurance need with Investment and return will be around 7%. But 99.99% agents try to push these products as they earn hefty commission which will be around 35% in first year, 7.5% in 2nd and 3 years and 5% for the rest of the period. So by paying such hefty expenses do you feel that these plans will generate more than 7% return? There will be strong defense by agents community about the commission involved. But you must understand expense involved in each product before buying any financial product. Otherwise it will ruin your financial life.

3) ULIPs (Unit Linked Insurance Plans)-As name suggests, these products are linked to market. The only difference between endowment plans to ULIPs is, in ULIPs your investment will be in equity market. Based on the market performance your return will vary. These were very popular before IRDA‘s 2010 regulations. Before this regulation these product include hefty expenses like around 80% of your premium in first year itself. These products were sold like hot cake by private insurance as well as LIC agents claiming that your money will double in 3 yrs to 5 yrs. But sadly no one (including regulator) not understood that equity investment is for long term and hefty expenses means lower return to investor. So after 2010 minimum lock-in raised to 5 years and expenses like agents commission reduced drastically to be at competitive rate. After these changes, agents stayed away from these plans from their selling kit claiming that these products are risky as they directly linked to equity market. But in reality agents commission was reduced and they felt not lucrative product to sell.

So ULIPs are best to invest? My answer involves both YES and No. Yes if product have less expense, better managed (very difficult to track ULIPs return tracking) and if your goal is of long term in nature. Otherwise you must stay away from these products.

Now after going through the Indian Life Insurance market, which is best life insurance policy? My answer is “TERM INSURANCE”. By buying it and simply investing PPF or Bank FDs (return taxable) you can earn more than the agent’s choice of endowment plans. So go ahead buy TERM INSURANCE immediately without any waiting.

Image courtesy of [Stuart Miles] / FreeDigitalPhotos.net

23 Comments

  1. Dear Sir
    I want to take term Plan with return premium. Please advice for best plan & Company name. my age are 47 year.

    Reply
  2. Dear Sir,

    Can you tell me if the following plan is good enough that I have taken, These plan is taken in Kuwait returns will be paid in dollars and if approx how much can I get as return at the end of the term.

    QUOTATION
    PARTICIPATING MARRIAGE AND EDUCATION PLAN

    Prepared for: Mr. Anthony Age: 36 years

    Premium Term LT 5 Years Only
    36
    Policy Term 15 years

    Sum Assured US $ 11,250

    Premium payable annually: US $ 1955.36

    This plan is a MUST for every parent who wish to ensure adequate amount at
    the right time for their child’s MARRIAGE or EDUCATION.
    It GUARANTEES the Amount at the end of the chosen term for the specific
    purpose. In case of death of the policy holder during the term, an amount equal
    to the sum assured is paid to the child for continuation of the basic education.

    CASH FOR MARRIAGE / HIGHER EDUCATION ( GUARANTEED)

    Amount Payable at the end of the term: US $ 11250.00 + Bonus

    (This payment can be opted for 10 Hly Installment also)

    PROTECTION FOR THE FAMILY AND THE CHILD

    Natural Death : US $ 11,250 immediately,
    Waiver of all future premiums &
    US $ 11,250 plus bonus
    on Maturity

    Accidental Death : US $ 22500 immediately,
    Waiver of all future premiums &
    US $ 11,250 plus bonus
    on maturity

    Permanent disability due to accident

    All the future premiums are waived.

    Monthly Pension US $ 93.75 for 120 months

    Death during term US $ 11,250 is paid to the child.

    Survival on Maturity US $ 11,250 Plus vested Bonus

    OTHER POLICY BENEFITS & PRIVILEGES

    This policy helps you to get a Housing Loan from LIC Housing Finance Ltd.
    for purpose of houses / flats in India

    This policy can be transferred to any of the 2048 branches of LIC of India
    on repatriation to India on request.

    This policy is free from conditions such as place of duty, residence, travel & place of death.

    Sum Assured can be reduced after one year.

    Surrender or paid up option after 3 years for full term & 2 years incase of Limited term.

    Policy can be assigned as a gift or as a security for financial arrangement.

    Premium sealing option offers discount to commute future premiums.
    Unutilized portion of premium is refunded on death.

    PREMIUM DETAILS 0.293
    PAYABLE 5 Yrs ONLY US $ KD
    If paid Yearly 1955.3625 572.921

    If paid Half yearly 997.234875 292.190

    If paid Quarterly 502.528 147.241

    If paid Monthly 168.161 49.271

    Reply
  3. Dear Vasu ji,
    I have purchased a aegion religare term plan of amount 50,00,000. Its claim ratio is very poor. Should I continue it in future or quit from this plan.
    Thanks in advance
    Sudheer singh

    Reply
    • Sudheer-If you disclosed all facts properly then no need to worry and continue in same.

      Reply
  4. Dear Sir,

    When I am searching about LIC for my personal need, fortunately just I saw your valuable responsible guidance for the people’s need in your web site. Really you are doing a very good service.

    I am an Engineer, 44 working in abroad at present. I am having no Life Insurance till now.
    I want to insure my life for a sum of Rs. 1Crore upto the age of 55years and wants to pay the premium once in a year.

    ULIP / Endowment / Money back…etc,, policy names are suggesting without clarity. Kindly request you to advise me for a Good policy name with details of yearly premium to be paid along with maturity benefits.

    Heartiest thanks to you.

    Reply
    • Renganathan-When your sole intention of buying product is only for insurance then why to run behind ULIP, Endowment or Money Back? Simply buy a term plan to the tune of around 15-20 times of your yearly income. Rest of money you can invest based on your financial goals but not AGENTS ๐Ÿ™‚

      Reply
  5. Hi, I’m 26 years old and want to opt for term insurance. I’m a bit worried going for term insurance at this age, bcoz the maximum policy term is 30 for most of the reputed companies.

    What will be your advice to me on my above query. Shall I go ahead with the term insurance?. If yes, then i will get cover till my 56 age only.

    NOTE: My family is dependent on me

    Reply
    • Jahan-You can check out with insurers who opt for 35 years or so. But my suggestion is to buy immediately.

      Reply
  6. Great artical,
    My mom is about 50 yrs old.
    Can she take Term insurance now.
    If yes then what cover SA, and wbat term, and what will be the premium..?
    Pls answer me.

    Reply
    • Harpreet-Insurance is required if someone financially dependent. So do you feel someone dependent on your mother’s income? If answer is no then why to buy Insurance?

      Reply
  7. Dear Basav

    I have an LIC Jeevan Shree taken in 98. It matured a couple of months back. I believe that this was a good investment as I have received a reasonably high maturity amount.
    I would like to reinvest this amount again with LIC.
    They requested me to invest this amount in New Jeevan Akshay Plan. An amount of around Rs 12,00,000 will give a Monthly PENSION right away of almost Rs. 7,000. As I plan to continue working for another 25 years, I donโ€™t need any pension at present and hence I declined to invest in it.
    So now they have come up with the below option.
    1. New Bima Bachat- Single deposit with Term 15 years & Risk cover of 15.5 Lacs. LIC pays a Survival Benefit of roughly Rs.2,50,000 after every 3 years as shown with return of premium of less then Rs 12,00,000 with Loyalty Addition( variable ) They suggest that the amounts received from LIC to be invested in Jeevan Akshay plan to give PENSION
    2.Single Premium Endowment plan- Single premium of around Rs.12,00,000 with Risk cover of around Rs 22,00,000 for 20 years term. Maturity amount of Rs 22,00,000- + BONUS + Final Addition bonus will be paid after 20 years , again to be invested in LIC- J.Akshay to fetch you PENSION approx 3,00,000/- annually.
    3.New Jeevan Anand plan- Yearly premium of around Rs 1,50000- paid for 20 years with a Risk cover of 25 Lacs for entire life. Maturity amount of Rs 25 Lacs + BONUS + Final Addition Bonus will be given after 20 years.This amount to be invested in J.Akshay can give a PENSION approx Rs 3,50000 annually.
    Please advice regarding the pros and cons of the above plans. I would also like to know why LIC wants me to invest in the New Jeevan Akshay with all the above options even though I personally feel I donโ€™t need it in the near future.

    Regards
    Dinesh

    Reply
    • Dinesh-That was a unique plan which fetch good return to you. But the recommended plan will generate you around 6% return. So if you are comfortable then go ahead. If you retiring next month then opt for Jeevan Akshay and if not then why now?? Please do remember that they pitch these trick to get one more policy. That’s all. Rest is left with you.

      Reply
      • Dear Basav

        Thank you for your reply.
        Can you please let me know if LIC also offer a ULIP?
        The choices give by LIC so far are:
        New Jeevan Anand plan
        Single Premium Endowment plan
        New Bima Bachat
        New Jeevan Akshay Plan

        Which of the above is best in the long term i.e. someone like me aiming to retire in 25 years?
        I have received all the above info from an LIC development officer whose emails are not from an official LIC email account.
        I have never dealt with an LIC Development Officer before. If he is an LIC employee, who gets the service tax on my policy?
        Also recently, I dealt with an LIC direct sales executive with regards to a new policy. Again I am not sure what is an LIC Direct Sale Executive? He too does not send emails from an official LIC email account.
        Before it was simple, just deal with the LIC agent.
        I think you should write an article on all the New (LIC) Kids On The Block and explain to your readersv what LIC is really upto!

        Regards
        Dinesh

        Reply
        • Dinesh-Whoever visit you like agent, Development Officer or direct agent, the main thing you need to look for is whether the plan suites to you or not. When you are claiming that your investment is for retirement then none of currently available LIC plans suites your need. Because return from such plans will be around 6% to 7% whereas the current inflation rate itself is around 8%. Then how can you sustain in long run? Also if possible do share how much return they quoted for each policies so that we all come to know how they are selling ๐Ÿ™‚ But overall my sincere advice is to STAY AWAY.

          Reply
  8. What is diff bw surrender value and paid up value ?
    How it’s calculated ?
    I have jeevan anand policy for 20 years term , in which I paid 9 years term, what will be your advices to paid up or surrender ?

    Thanks sir in advance

    Reply
    • Vikas-Surrender value is the amount you receive immediately closure of policy (you will not pay any further premium also policy stops there itself). Paid up value is the reduced sum assured and will continue till policy maturity or death claim (no need to pay any further premium but policy continue and you will not receive any amount till maturity or death). Do remember that in paid up option whatever the bonus you earned already will be with you, but your policy will not earn any future bonus. So the paid up value will remain same from the date you opt for surrender to till maturity.
      Surrender Value Calculation-It is some % of Paid up which depends on company calculation.
      Original sum assured * (Number of premiums paid / Total number of premiums that were required to be paid) + Accrued bonuses * Surrender value factor
      Surrender value factor depends on company.
      Paid Up Calculation-Original sum assured * (Number of premiums paid / Total number of premiums that were required to be paid).
      Better to go for surrender in your case.

      Reply
  9. Hi Basu,

    Great Stuff on your website. Its great source of information. I am 30 year old married person and planning to buy online term plan of 50 lacs for 30 years. Is it advisable to buy a similar one in spouse name too? Importantly does this death benefit covers death due to accidents ? As it is highly unlikely that people of my age will have natural death. Please advice how to plan for Accidental insurance.

    Many Thanks. Keep up the good work.

    Reply
    • Avinash-Insurance is required when you have someone financial dependent. So if your wife is not earning and no one is depend financially then not required. Yes, even if death occurs due to death this your nominee will receive the sum assured you opted. Currently at your age you may feel natural death is a rare case. But if you opted for for long term insurance coverage and after few years what if death occurs due to health complications?

      Reply
      • Thanks. My understanding is that term plans (without any rider) only cover natural death and not the death happened due to Accidents or critical illness. This is why i said for my age natural death is rare. Correct me if my understanding is incorrect. And if i am correct then should we opt for accidental riders in term plan (if they are available) ?

        Reply
        • Avinash-As I said earlier, in term plans (where you not opted for accidental death option too) if death occurs due to any means like natural or accidental then your nominee will get the sum assured. In case along with normal plan if you opted for Accidental Sum Assured and if death occurs due to accidental then your nominee will get SA+Accidental SA you opted. But in case if death occurs due to normal then only SA but not accidental sum assured.
          Few companies offer such accidental riders (with limited SA option). But better to have your own accidental insurance separately.

          Reply
          • Thanks a lot. All doubts clear now. Cheers.

            Reply
  10. Sir,

    Thanks for this informative blog which helped me to buy a term insurance of Rs.1 crore. I bought it online but was assisted by HDFC Life local office.

    I am 50 years old and I shall be paying the annual premium of Rs.40270 till I reach the age of 65. This was the cheapest online term plan for my age.

    As you (and some others) have pointed out, I shall be investing the rest of my savings in the coming years in bank FDs and tax free PSU bonds from NTPC/HUDCO etc.

    May I request you to do an analysis of tax-free PSU bonds which are tradeable and offer much better returns but not many people are aware about them.

    Reply
    • Shyam-Sir I am happy that you endorsed my views and applied them in your financial life. Sure I thought about this and just compiling the data. Hope you wait. Best of luck ๐Ÿ™‚

      Reply

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