Every channel, magazine and blog tells you to buy Term insurance…right? Now the industry is much, much smarter than the customer – so they have come up with many, many variants of term insurance! More about that later…but let us see what gives you comfort:

1. Buy term insurance on the net: it is the cheapest way to buy term insurance. Let us say you are 27 years old and are trying to buy a pure term life insurance product. Chances are you will surf the net and find out that Aviva is the cheapest (it could be Religare, but this is just an example). So you decide to buy Aviva – you pay by card, upload the IT papers, Pan Card, etc. You get a medical appointment – medicals done, you get the policy. Sum assured Rs. 1 crore. Premium Rs. 2000 a quarter. Fantastic.

However many, many, many people are NOT as tech savvy. They walk into a BANK branch and say ‘I wish to buy Term insurance’. The bank OBVIOUSLY has a tie up with a life insurance company. The representative of the life insurance company sits in the bank branch itself. Organises the paperwork. Says ‘Sir here is the quote for a term insurance – the premium is Rs. 24,612 for sum assured Rs. 1 crore. However, Sir we have a ONE time premium of Rs. 254,000 for 30 years.

Can anybody say….which was/ is a better deal…and why?

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  1. I would never opt for a single premium plan in term insurance. The reason being, if i pay in a single shot the premium for a term insurance cover for say a tenure of 30 years, and if i were to die after 2 years, i am not sure if the bank will refund my family the advance premiums for the balance tenure i.e. 28 years. Besides this, it does take away a lot of flexibility in term insurance planning i.e. what if may want to change any of the vital feature of the plan such as sum assured, tenure or just about anything. In a regular term insurance plan, since there is no maturity value, obviously it gives me the freedom to decide anytime in the future to make the required changes in the insurance portfolio.

  2. If person expects to earn more than CAGR of around 9% then annual payments should be better. If less than one time payment works out better.

  3. First of All, I dont think going with Aviva could be a very bright idea. The claims settlement ratio is high only among large players like LIC, Birla Sunlife, HDFC standard and to some extent ICICI Pru. The settlement record of other players leaves a lot to be desired. What use is a term policy if our nominee is made to run around for the sum assured ?

  4. obviously the first , online term insurance whether from Aviva or any other of choice with premium @8000/- a year or so. definitely rs. 24000/- could not be for off line pure term insurance in this competing environment. it could be some variant of term insurance, may be with return of premium or something. and one time payment for insurance is always avoidable as Amit stated above.

  5. @mkd, it is not just about CAGR. you would get locked in for 30 years. In future, if you dislike aviva or if other company comes up with much better plan then you cant do anything.

    Another point to note down that hardly anybody gives insurance for 30 years. Many company give only for 25 years. So one time payment can be good in that case.

    I also dont know whether premiums can be increased over the years. If that is the case then also one time payment makes sense.

  6. First of all Term Insurance is good thing to have. If it is online then its cost effective. Now to come to your example of comparison — Yearly premium of Rs. 24,612 is good or one time premium of Rs. 254,000 for 30 years is better ?
    I will prefer yearly premium due to its flexibility. In case of one time premium payment person will get stuck with that company good or bad. May be we will get some good term insurance option in future for even lesser premium !!!

    I did small calculation. If we can rollover the one time premium of Rs 254,0000 @ 10% and then pay yearly premium from this account it will be almost same for 30 years.

    Lets say I pay Rs 24,612 first year premium and for remaining amount of Rs 229,388 did term deposit @ 10.06445 % (to be precise), then withdraw yearly premium amount from this account (Compounding magic will work as usual). At the end of 30 years I will be net-net zero. So for a laziest man on earth this will be optimal solution.

  7. Why I will not go for single premium :

    1) Just the interest of single premium will cover my annual premium. Why should I keep my money with the insurer.
    2) I will be at the mercy of the insurer. They may change policies later, which would definitely have been there in fine print, which I am not aware.
    3) I am free to move to any other cheaper/better alternatives at some point of time in future.
    4) What if the insurer dies before I die?
    and
    5) I may not need insurance at all in future.

  8. @Arun: Subra has only given Aviva as an example. He is not recommending it.

    As for the other question: should I pay premium quarterly / annually vs. one-time.
    I’d go with the first option. Mainly in terms of keeping my choices open over 30 years, and then in terms of the impact of CAGR on the one-time payment amount, if any.

    Of course, with the advent of ‘portability’ (or ‘continuity’) in the insurance business, consumers will also have the choice of switching insurers.
    Also, one would need to assess the cost-effectiveness of such a switch.

    PS: I’m not sure whether this applies to life insurance or not, but I have recently done this for my medical insurance policy.

  9. I have a term insurance policy of 1 Crore, of which 50L is with LIC and 50L is with SBI. As I approach my financial goals (house paid off, kids education completed, married, etc), I am free to discontinue one of the policies if needed. I pay for the full term and I might have to run around to get my premium back if I do so. Annual payment would be better off in such a case to avoid these bureaucratic hassles.

  10. Opting for single premium is not good for the following reasons

    1. We pay the amount one shot and we miss the interest on it.
    2. We do not need to opt for same amount of insurance every year and it may decrease and we loose this benefit
    3. We might want to change the insurance company if the claim settlemnent ratios are very bad

    Moreover prefer to buy it online, since the premium is lesser.

  11. Subra sir, I think both options would not be a great deal.

    Online Term from Religare or Aviva would not be a great deal because of the claim-settlement ratio. But buying term insurance online is definitely a better deal if you opt for the right insurance company and right term plan.

    From the Bank – First, it limits you with the option you will have if you choose across the insurance players. Secondly, the premium does not suggest real premium for 1Crore for a term plan. It has got to be cheaper than that.

  12. The deal could be good or bad based on individuals who is considering.

    If someone has a regular income stream ,His first choice should be a annual premium way.

    On the other hand if one doesn’t have regular source of income or his income is highly irregular then for him it will be best to opt for one time payment and lock his insured value at higher sum assured when he has the money now.

  13. subra sir, as an NRI the relatively easier option for me was LIC Amulya Jeevan. the online options were available only for resident indians. DOnt understand why

  14. Deciding to buy a term insurance is easier than the actual process of buying the term insurance. Taking care of filling all the fields in the form correctly is not rocket science but needs ‘some’ work.

  15. The reason for not going to single premium
    1) Annual premium will help me showing tax under sec80C
    2) Rupee value will be less due to inflation , so better to pay annual premium and rest money in term deposit/liquid plan
    3) In case of early death, my family will get the 2 lakh (approx)rupees extra as premium is annually.
    4) It amy be possible after 8-10 years, Either my financial situation will good so i do not require the Insurance et al or i may require more coverage amount so i will go for more sum assured.

  16. between regular paying & single premium, the latter is always the better option for the customer. the rates are mostly in your favor, as the risk of lapse is 0, you are given benefit of time value of money & commissions are 2% flat. of course, this assumes you actually have the money to pay (& don’t take a loan) & don’t buy insurance for 80C only.

  17. just checked that IRR comes to 10%, which is good enough to favor single premium. of course, if you take it on loan, that would mess it up!!!

  18. Hi.. I like your blog 🙂
    how can i follow up with your blog.and get a notification of new posts on your blog.

    Thanks,
    Suphala.

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