Take long-term life plan at older age for long-tail liabilities

Published in Mint on 22 September, 2015, Written by Abhishek Bondia

I am a 59-year-old man and do not have a life cover. Can I buy a term plan now? What are the things a person my age should consider while buying a life insurance policy?
—Suresh Kapoor

Yes, you can buy a term plan at the age of 59. Premium at this age will be high.
You should, however, be mindful of two things. First, in case you have a medical condition such as high cholesterol, it is likely that insurers would issue the policy with a loading. This will raise your costs further. Second, you should think about the appropriate term of the policy. Generally, all major liabilities and responsibilities such as children’s education and marriage, and mortgage are settled before 65. Therefore, taking a longer duration term plan might not make sense unless you have a specific long-tail liability to take care of.
I must emphasize that term insurance is meant for financial protection of dependants in case of untimely death of the insured. It has no benefit towards old age care.

What are the important details required to be submitted if I wish to change or add another nominee?
—Vivek Sinha

For adding or changing s nominee, you have to fill a form prescribed by the insurer. A few supporting documents are required. Documentation varies by insurer but typically includes age proof of the nominee and relationship proof between the nominee and insured.
A non-blood related nominee is generally not allowed.

What are the most important things that one should look at when buying a life insurance policy?
—Rohit Kannauj

The first aspect to be clear about is why you are buying the insurance. Is it for protection so that your dependants are financially secure if you die early or is it for tax-free investment or for a forced saving?
The most important objective is of protection and for that term insurance is the best option. For this you should look at the duration for which the plan is available, riders available with the plan, and absolute cost.
A typical term plan has the same benefit and exclusions across insurers.
In other insurances, you should look at the cost structure and the historical net yields. Net yields refer to the returns after deducting all costs.
In unit-linked insurance plans (Ulips), the historical investment performance of that product is important whereas in traditional products, the returns are linked to the government security rates.
Do make sure that the combination of sum assured and premium that you select is exempt from taxation. The sum assured should be at least 10 times the premium that has to be paid.
Finally, you must also look at surrender costs. If you decide to exit the policy, it should be possible to do so without prohibitive restrictions and charges.

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