The Life Insurance market is a diverse one today, with tons of options available to the discerning buyer. Choosing what option to buy can be extremely confusing, with insurance seekers often wondering what cover to buy and what the ideal sum assured should be.
Life Insurance products are long-term commitments and should only be bought after a careful evaluation of the long-term financial needs of your family such as the paying off your Home Loan, meeting your children’s education costs, etc.
There are various ways to calculate your Life Insurance needs. But, for the sake of simplicity, let us assume you currently earn Rs. 500,000 a year, and you need to find a way for your family to replace your income for 20 years in case you were to die today. This requirement works out to Rs. 1 crore.
Through the various options available to you, what will it cost annually to buy a Life Insurance cover of Rs. 1 crore? Let’s take a look.
Unit Linked Insurance Plan (ULIP)
ULIPs provide life cover along with the benefit of return on investment. In it, the corpus is invested in various asset classes such as equity and bonds. A smaller part of the premium is routed towards mortality charges for your insurance cover.
The sum assured is decided on the basis of premium paid. For example, if the insured person’s age is 30 years and he pays a premium of Rs. 10 lakh per annum under LIC’s New Endowment Plus (ULIP) policy, his basic sum assured would Rs. 1 crore (10 times the annualised premium).
On his death, the policyholder’s beneficiary would be entitled to get the sum assured, or 105% of total premium paid, whichever is higher. Similarly, the death benefit calculation may vary across insurance companies.
Endowment plans are traditional insurance policies that offer insurance cover along with maturity benefits. Like ULIPs, they combine insurance and investment.
The premiums charged under endowment plans are higher than term plans for a similar level of cover. Like ULIPs, your premium is returned at the end of the policy period along with assured returns and bonuses.
To get a life cover of Rs. 1 crore when the age of the insured person is 30 years and the policy term is 25 years, the total annual premium in LIC’s new endowment plan comes to around Rs. 383,201.
This means, if the insured person dies within the covered period, his dependents get Rs. 1 crore, but if the insured person survives the term, he would be entitled to Rs. 1 crore along with the bonus earned on the corpus.
A money-back insurance plan is similar in many ways to endowment policies, but the main difference is that it offers money back to the policy holder at regular intervals, and the balance of the sum assured along with the accumulated bonuses are credited at the end of the tenure.
If the policyholder dies during the policy period, his beneficiary is entitled to get the sum assured. For example, in the LIC New Money-back Plan for 25 years, where the sum assured is Rs. 1 crore and the age of the insured person is 30 years, the premium comes to Rs. 593,668 per annum.
If the insured person survives the term, then he is entitled to get 15% of the sum assured in the 5th, 10th, 15th and 20th policy year, while on the 25th year he would get the remaining 40% of the sum assured along with the accumulated bonus.
Term plans are plain vanilla insurance plans with no maturity benefit (unless you’re buying a plan with a return of premium option). The beneficiary gets the death benefit only on the demise of the insured person, and additional benefits as assured by the add-ons and riders of a plan. The premium amount varies with the age and heath of the policy seeker, and varies from one insurance company to another.
As illustrated above for LIC’s e-term policy, if the proposer’s age is 30 years with no history of tobacco use, and the policy period opted for is 25 years, his annual premium would come to around Rs. 12,948 per annum (including online rebate). This is the cheapest way to ensure a large life cover.
Cost Comparison: ULIP Vs Term Plan Vs Endowment Plan Vs Money Back Policy
|Money Back Policy
|Tenure of Policy
|Up to 20 years
|Rs 1 crore
|Rs 1 crore
|Rs 1 crore
|Rs 1 crore
|Rs 10 lakh*
|Rs 3.83 lakh
|Rs 5.94 lakh
|Note: The rates are taken from LIC’s New Endowment Plus policy for ULIP, E-term for Term Plan, New Endowment Plan, New Money-back Plan-25.
Now that you know about the various options available to you if you’re looking to buy a Life Insurance cover of Rs. 1 crore, you can make an informed decision before taking the plunge.