Sep 26, 2007 04:06 PM
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The Life Shield insurance scheme from SBI Life Insurance is one of the better term insurance plans in the market. It has the lowest premium options compared to even LIC term plans( Amulya Jeevan /Anmol Jeevan - I); They also offer attractive premium discounts(female life's have a discounted premium).
Also, SBI is one of the most reputed institutions in India and when it comes to claims settlement, we need to be cautious in choosing a company that has a track record. I would place SBI only second to LIC in this regard and much ahead of any other insurance company in the fray.
SBI Life is also offering a term plan which takes into consideration the inflation. The options available are Level cover which offers a term plan for a fixed amount , term plan with incremental coverage of 5% every year or 50% increase of sum assured every 5 years.
The only draw back I find with this plan is that, it does not acquire a paid up value. That is if you discontinue payment of premiums, your coverage stops. They don't have an option where you can still be covered for a lower amount appropriate for the amount of premiums already paid by you.
I would recommend a term plan with argument that most of the other schemes which provide a sum assured on maturity, first take into account the cost of providing the insurance plus they invest the remaining amount to generate the sum assured plus bonus(depending on Insurance Company) that is usually a below par return than most investments like MF or Post office investment schemes. So, you are essentially better off just paying for the term insurance and deciding to make the investment on your own for the remainder of the premiums.
Let me illustrate this point:
A term policy with SBI Life with no riders for a 30 year old male for a sum assured of 25 Lakhs for 20 years costs Rs.6010 PA. This premium is atleast cheaper by Rs.1000 than the prevailing term plans in the market.
If you go for a traditional endowment policy for 25 Lakhs, the premium to paid is in the range of 1.2 lakh PA and upwards for a premium payment term of 20 years.
The return from both schemes in the event of loss of life is the same Rs. 25 Lakhs. On maturity you get back nothing from the term policy and would have enjoyed an insurance cover for a cost of Rs. 1.2 lakhs. On the other hand if you go for an endowment policy you get a return of 25 lakhs plus some bonus(depending on the insurance company) at a cost of 24 Lakhs. The return from the investment is less than 5% which is less than what you would get from any other investment option in the market.
You are much better off taking a term plan and then make an investment plan to earn a return of atleast 8% or more from the market. This way you are protected as well your investment yields a better return.
The other plans like ULIP's, Children's Plans, Pension Plans, etc which invest in the stock market and advertise higher returns have a huge hidden cost factor. They take up a very high portion of the premium towards allocation and other expenses. The general trend is to take anywhere between 30-70% of premium paid towards costs and the remainder only goes towards your nest egg. Instead of going for such plans, you can directly invest in Mutual funds and opt for a term plan at a low cost for protection.
The main deterrent in taking up a term plan is our attitude(formed due to misconceptions) that the premiums paid seems to be an expense with no return. However a careful review of most of the schemes will throw light on the factor that all the schemes do pass on the cost of insurance cover on the customer and provide lower returns than most investment avenues.
