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Tuesday, May 9, 2017

Life-stage Protection Insurance



A no-frill term plan works better, but minimal documentation enagages buyers

Most life insurance term plans offer a life-stage protection feature, which allows you to increase your sum assured or cover at different milestones, without any medical examination. But is it worth it?

HOW Life-stage Protection Insurance WORKS

Life-stage protection feature of term plans gives you an option to increase your sum assured by a certain percentage of existing cover at two key milestones in your life: The first at marriage and the second at the birth of a child (up to two children).


For example, if you have taken a `1-crore term cover before marriage, you can enhance it by 50% or `50 lakh on marriage and then by 25% or `25 lakh each on the arrival of the first and the second child.


Some term plans also have a cap on the sum assured that you can increase. Of course, the premium will go up as it is re-calculated based on rising age along with higher sum assured and remaining policy term.


You can opt for this option within six months of an event occurrence or at the prescribed cut-off age. Remember, this feature is available only for life cover and not on any riders and is limited to pure term plans with `life option' in industry parlance.


The plus point is increased cover is available without any medical examination with most insurers.


When you buy a separate cover, you need to go through documentation process and medicals, which might lead to an additional increase in premium due to a new medical condition. Whereas in life-stage protection option, neither fresh documentation nor any medical test is required and the premium would be recalculated only based on the age.

IS IT ANY GOOD?


A back-of-the envelope calculation shows that a plain vanilla regular term plan with no frills works better.On the face of it, a `1-crore cover with no increasing life option is the cheapest. A `2 crore cover (with all three events factored in on day 1 and 200% cover opted on day 1) comes out to be the second cheapest. This is because the premium gets frozen at an early age. Whereas life-stage-increasing cover turns out to be the costliest option(See premium for different options) .


SHOULD YOU GO FOR IT?


You may skip this option and opt for an additional term plan based on changing life situations, say experts. Start with the minimum base life cover through a vanilla term plan and then take additional cover when required. You can completely skip this option if you have a working spouse as well as sizable assets that will take care of financial safety of your dependents


 There are many factors that determine life insurance requirements. He lists new responsibilities, income and expense patterns over time, the amount of savings and assets built (which decreases the need for cover), loans taken (which increases the need for cover) and any risk factors or money goals (which again increases the need for cover). Based on this assessment carried out once every three years, one may take appropriate further covers.


However, if you are relatively young and looking for a hassle-free process later at different life stages, this option could be for you as there is no documentation required again in the same plan. If you are young and yet to start a family, you could go for this option, especially if you are not looking at higher sum assured at beginning of buying term plan



imggallery


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