Jagruthi decides to take up a Term Plan. The features of the term plan are:

• Complete cover for life against risk
• In case of death the sum assured is paid back to the family members of the policy holder
• Being a pure risk plan, no maturity benefits are payable to the policy holder.
• Term plans come with optional riders e.g. the HDFC Standard Life term insurance plan comes with riders like critical illness benefit, accidental death benefit and accelerated sum assured benefit and waiver of premium benefit.

Jagruthi's rationale of selecting a term plan was the cheap premium that she had to pay. And in today's insurance domain, term plans are indeed the cheapest.

The question which arises is "Is Jagruthi's decision of taking up a term plan justified?"

With the inflow of private companies in the insurance industry there is a plethora of options open to the investor. The skill lies in identifying the product, which best suits the investor's profile. In the given scenario a term plan may not be best suited for Jagruthi due to the following reasons:

• Term plans are the cheapest and simplest policies carrying a low premium as compared to other policies. Hence term plans are suitable for a person who is not earning a very high amount. But in the case of Ms. Jagruthi, her gross income is Rs.3,50,000 and the investable surplus is Rs.2,30,000. Hence she can comfortably afford a policy which not only provides a risk cover but also yields returns.
• Jagruthi has plans of getting married in another five years. Hence it is necessary that she has adequate liquidity in her hands in the intermittent period of the policy. But a term plan is purely a risk cover and hence will not yield any returns either in the intermittent period or at maturity.

Considering the Jagruthi's background and her requirement a money back plan would be ideal for her. The broad features of any money back plan are:

• A money back provides liquidity by ensuring the return of a certain proportion of the sum assured at regular intervals.
• On survival up to maturity the sum assured (along with the bonuses if any in case of a participating plan) less the sum already paid is paid to the policy holder.
• In the case of the unfortunate death of the policy holder during the term of the policy, the basic sum assured plus any bonus addition is provided. This is over and above the earlier payouts.

This article discusses the Money Back Plan offered by HDFC Standard Life Insurance Company

The salient features of the policy are:

• This is a participating plan where is the sum assured is payable at 5 intervals during the term of the policy
• Minimum duration is for 5 years while the maximum duration is for 30 years
• Schedule of cash payments under this policy is shown below:
  

  Policy term	Number of years from the policy date
  	5	10	15	20	25
  10	40%
  15	30%	30%
  20	25%	25%	25%
  25	20%	20%	20%	20%
  30	15%	15%	15%	15%	15%

• The age limit for this plan is between 12 years and 60 years
• The death benefit provided under this plan is the sum assured + bonuses over and above the earlier payouts
• The maturity benefit under this plan is sum assured + bonuses less the earlier amounts that have been paid
• The riders that are offered are:
  • The critical illness rider : the critical illness rider provides an amount equal to the sum assured on the diagnosis of the six common diseases. Once such claim is met, no further critical illness benefit is payable. However the policy continues as before
  • The accidental death benefit rider : this provides an additional benefit equal to the sum assured in case the death due to an accident OR the policy holder dies within 90 days of the accident
  • The additional term benefit rider : this provides an additional amount equal to the sum assured in the event of the unfortunate death of the policy holder
  • The waiver of premium rider : this rider waives the total premium payable in case the policy holder becomes totally disabled and is not in a position to earn.
• All the above riders should be selected at the outset of the policy.

The amount of premium (basic amount and under each of the riders) is shown below:

Basic Policy Premium	Additional Premium for the Riders				Total
	CI	ATB	ADB	WOP
7,491	304	322	136	352	8,605
7,585	442	388	144	443	9,002
7,925	925	641	456	672	10,619
8,815	1,891	1,357	NA	NA	12,063

NOTE: The premiums presented above are only indicative and may vary depending on individual profile

Given Jagruthi's profile, such a money back plan would be most suitable for her. Jagruthi should contemplate taking up such a plan topped with a rider which best suits her purpose.