Rule: Term insurance policies, which are pure protection plans with no investment component, are the cheapest form of life insurance.
Exception: If a person is in perfect health, an accidental death cover works out to be much cheaper than a term plan. These policies are particularly useful if the person is exposed to accidental risks.
75 per cent: This is the saving on the premium of an accidental death and disability cover for a 40-year-old male compared with that of a 25-year term plan for a cover of Rs 10 lakh.
Rs 3.70 is the cost per day of an accidental death cover of Rs 10 lakh. This comes down further if you take into account the income tax benefits on the premium paid.
Accidental death cover is not a replacement for life insurance. It covers death due to an accident, while a term plan covers death under any circumstance. But it costs much less and can be taken in addition to life insurance. Besides the lower premium, the insured person is also covered for disability caused by an accident.
Accidental death cover premium does not increase with age. A 25-year-old will pay the same premium as would a person aged 40 years. However, insurance companies take into account other factors such as a person's occupation or the distance he travels every day for work. So, the greater the distance, the longer the time he spends on road and higher the risk.
Disability cover is very important because a life insurance plan will not be of any use if a mishap leaves a person with a disability that impairs his livelihood. The good thing is that life insurance companies offer accidental death and disability riders that can be taken along with the basic life cover.
