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Money Matters

Money Matters
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First Published: Mon, Mar 09 2009. 06 07 AM IST

Updated: Mon, Mar 09 2009. 08 16 PM IST
What is term insurance? What kind of investor profile does a term plan suit the best?
Term insurance, also known as pure life cover, is the cheapest and simplest form of life insurance. While the life assured has to pay premiums regularly in a term insurance policy, the insurance company pays the sum assured to the beneficiaries if he dies during the term of the plan. The life assured specifies who the beneficiaries will be at the time of buying the policy. Nothing is payable if the life assured survives till the end of the policy term. This policy has no component for savings and the premiums paid are purely the cost of buying the life cover. While term insurance is suitable for everyone, it is tailor-made for those who are looking for a low-cost life cover, without any savings benefits attached. It can also work especially well if the person buying it is at that stage in life where an insurance cover is vital but payment of a high premium is not affordable due to low income.
A colleague has recommended SBI’s Life Shield to me. Is it a good plan?
Shambhunath Singh
SBI’s Life Shield is a pure risk policy with no maturity benefits. The term can be 5-25 years. The minimum sum assured is Rs3 lakh. Some features of the plan are different from a typical term insurance plan. Under this plan, you can increase the cover by 5% every year or by 50% every five years. Irrespective of the option chosen, the same premium has to be paid through the entire term of the policy. Term plans are the best way to cover life risk and the added features of Life Shield make it a good offer. But before buying the policy, you must compare the premiums offered by other insurers.
The lender has not made insurance mandatory for a home loan I am going to take. But an agent advised me to consider HDFC Standard Life’s Home Loan Protection Plan. Should I go for it? How much premium will I have to pay? I am 35 years old.
Rakhi Rawat
You can take a life insurance plan to secure your debt even if the lender does not make a cover mandatory. A home loan is a financial commitment between the borrower and the lender. The lender can take possession of the home if the borrower is unable to fulfil this commitment. If you have dependents, you need to ensure that they are provided for if you die prematurely.
HDFC Standard Life’s Home Loan Protection Plan is a single-premium life insurance policy that pays off the outstanding loan liabilities of the insured if he dies during the term of the plan. The sum assured decreases with the repayment of the loan. By reducing the sum assured as the years go by, insurers ensure that you do not pay for protection you don’t need. If you turned 35 years on your last birthday and you take this plan for a term of 15 years with a sum assured of Rs3 lakh, the single premium will be about Rs6,813.
I have been going abroad regularly for the past two years. In the process, I forgot about a life cover for which I had paid premiums for four years. The policy has lapsed as I failed to pay two premiums. Can I revive it?
Paul Ahuja
It is usually possible to revive a policy during the lifetime of the assured individual within a period of five years from the date of the first unpaid premium and the date of maturity (subject to policy conditions). Go through the conditions of your policy to check if revival is allowed. If it is not, contact your insurer immediately with your policy details. You will have to pay all the arrears of the premium together with half-yearly compounded interest at the rate prevailing at the time of payment. However, the insurer reserves the right to accept or decline the revival of a discontinued policy. The revival of a discontinued policy takes effect only after the insurer approves it. This is specially communicated to the life assured.
Write to us at moneymatters@livemint.com
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First Published: Mon, Mar 09 2009. 06 07 AM IST