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The Long Read
Everything you *need to know* is right above this. Scroll down, only if you'd still like to read more (honestly, why?)
Yes, absolutely. A group term insurance plan is, no doubt, an excellent employee benefit.
But you’ll still need an individual term plan. Here’s why:
One of the biggest drawbacks of group term plans is that the life cover will never be enough to meet your family’s financial needs.
Additionally, your individual term plan can be customised to your needs. But your employer term plan offers limited customization benefits. You may not be able to opt for add-on benefits like critical illness and other disease coverage in a group plan.
Your individual term plan covers you during the entire policy duration that you can choose at the time of buying the plan. But if you rely only on your group term plan, you will lose the policy benefits when you quit your job.
Your employer's group term plan may not be enough to meet your family's financial needs. This may put your family in a financial crisis in case of your unexpected demise.
But that’s not the only limitation with group term plans:
Your employer can discontinue or change the cover of the plan at any time they want. You may not have any say in this
If you quit or take a sabbatical/gap year, the plan will get automatically discontinued and you will lose coverage
You can’t renew or extend a group term plan once you retire (although it depends on the insurer). Getting an individual term policy after your retirement will be very expensive because your premium amount increases with age
Your group term plan may or may not come with add-on benefits like critical illness and other disease coverages
Well, even if you have no plans to get married and have children, you may still have elderly parents, siblings and other family members who are financially dependent on you. Single people have loved ones too, right?
So to answer your question, yes you need to buy an individual term plan if you have people who rely on you, especially if you are the sole breadwinner.
And you never know when you might change your mind about marriage and kids in the future. So you might as well buy a term plan now and lock in cheaper premiums.
Still unsure? Find out in detail about who should buy term insurance.
You don’t need any complex calculators or vague rules of thumb for calculating your life cover. Instead, use this simple formula:
Life cover = Your Policy Term x Your Current Annual Income*
*It is the pre-tax annual income that you earn by actively working, aka the income that’ll stop coming in if you’re not around. It includes your salary and business income but not any rental income, interest, and dividend.
Your policy term = the age till you want to work - current age
Your group term plan may or may not be active when you pass away. This could be because of multiple reasons, like you no longer work with your employer, or your employer retracted insurance benefits. While calculating your individual term cover, you don’t need to take your group term cover in consideration.
For calculating your life cover, you don’t need any complex calculators or vague rules of thumb. Instead, use this simple formula:
Life cover = Your Policy Term* x Your Current Annual Income**
*Your policy term = the age till you want to work - current age
**It is the pre-tax annual income that you earn by actively working, aka the income that’ll stop coming in if you’re not around. It includes your salary and business income but not any rental income, interest, and dividend.
Unlike your employer insurance which lasts till you are employed with the organisation or your retirement, you have the option of choosing your policy duration when buying an individual term plan.
You should stay covered only till the age when you plan to retire. Here’s why:
See, your term insurance life cover is just the replacement of your income which will keep your family financially secure if you pass away unexpectedly during the policy duration.
You will have an active income till your retirement. By the time you retire, your loved ones may not be financially dependent on you anymore and you will have met most of your financial responsibilities such as loan repayment, child’s education and so on.
So it makes sense to stay covered only till your age of retirement.
Pretty valid question. Yes, you do.
See, if you pass away unexpectedly, your family will not only suffer emotionally, but they may also struggle financially. Let’s understand how:
Say both you and your spouse are earning. If you pass away unexpectedly, your total household income will reduce
Even if you are a homemaker or stay-at-home parent, your sudden death can result in financial troubles for your family. See, in your absence, your family may need to hire professional help (such as a full-time maid/nanny) to take care of the children and/or the elderly. Your spouse may also be required to spend more time at home, resulting in a pay cut. In this case, even if your life cover is less than that of your spouse’s, it will still be useful should the need arise.
Additionally, if there is a change of heart between you and your spouse (such as divorce or separation), your family may no longer get benefits from your spouse’s policy.
The reasons tell you why both you and your spouse need to buy term insurance and not rely on each other’s plans, whether employer insurance or individual.
Well, it’s normal to feel tempted to buy a term plan that provides coverage for as long as 99 years, especially since your group term plan will only cover you till retirement.
But honestly, it’s not a good idea.
See, term insurance is not an investment. It doesn’t give any maturity benefit i.e. you won’t get anything if you outlive the policy duration. Your family only gets your life cover if you pass away during the policy duration.
You are very likely to fulfil all your financial responsibilities well before you reach 99 years of age. By then your kids will also be financially independent and not need to rely on your income anymore.
So unless you are planning to be employed till 99 years, why should you stay covered till so late? If you opt for an unnecessarily long policy period, you will also end up paying a higher premium than necessary. You’re likely to get better returns if you invest that additional amount in a mutual fund or fixed deposit.
Yes, absolutely. You can buy multiple term policies from the same or different insurer as long as your total life cover amount doesn’t exceed your human life value (HLV) which is the present value of your future income, expenses, liabilities and investments.
Don’t worry, your insurer will help you calculate this. So remember, whenever you are planning to buy more than one term plan, you need to keep all the insurers informed about your existing plans. Failure to do this may result in a term insurance application or claim rejection.
This will depend on your employer. A group term insurance policy may or may not remain valid when you leave your current organisation.
This is one of the reasons why we advise you not to rely solely on your group term insurance policy for protecting your family financially but get an individual term plan too where you can decide your own policy duration.
Yes, you can.
Depending on your health condition and other factors such as lifestyle, profession, hobbies etc. the insurer may do one of the following:
Accept your application
Reject or postpone it
Accept it with a higher premium
Remember, if you have waited till now to buy term insurance, you will have to pay a higher premium than what you’d have typically paid if you had bought a term plan earlier.
That’s because you are more likely to have developed certain health problems or bad lifestyle habits among other factors which directly impact your term insurance premium.
Besides a premium hike, you may also face an application rejection if the insurer considers you to be too risky to provide a term plan. Find out in detail why your insurer may reject your term insurance application even if you are eligible to get one.
Don’t be discouraged. Talk to your insurer or even an insurance agent/financial advisor to understand your options. And don’t delay buying an individual term plan any further.
It’s always a good idea to let your insurer know about any term policy that you currently have, even if you have a group term plan. Not doing so may result in a claim rejection later on.