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I have three premium-paying term options: three, five and seven years. Which one should I opt for?
—Santosh Bali
You have not specified the kind of policy you want to take. Every policy offers a range of premium-paying terms to suit everyone’s needs. Before deciding on a premium-paying term, you need to consider some factors, such as the nature of the policy and your financial commitment to pay the premium amount for that tenure. The longer the payment term, the longer the commitment. If you are not sure of your capacity to pay, opt for a shorter term.
The benefit of choosing a longer term is that it averages the high charges levied in the initial years of the policy and spreads the risk factor, especially in unit-linked plans where the investments are subject to market risks. The benefit of taking a longer tenure in a whole life term insurance plan is the payment of a fixed premium amount for a longer period, irrespective of hikes in premium.
Tata AIG Life InvestAssure Apex Plan has a guaranteed NAV (net asset value) and takes the highest NAV of the previous 10 years into account at the time of redemption. Should I opt for it?
—Shailendra Bansal
The plan comes with a guaranteed NAV/ return but at a cost. Also, the upside may be restricted due to higher exposure to debt assets. Tata AIG Life InvestAssure Apex is a close-ended unit-linked insurance plan that has the option of a guaranteed maturity unit price. The annualized policy premium, net of applicable charge (including service tax), is allocated to the Apex Investment Fund. On the immediate reset date, the amount in the Apex Investment Fund is switched to Apex Return Lock-in Fund using the unit price determined as of 3pm on that day.
The policy maturity guarantees the highest noted unit price (NAV) on the defined set of 100 reset dates during your policy term. Reset dates are the 10th day of every calendar month, applicable only for Apex Return Lock-in Fund, on which the unit price of the fund is noted for the purpose of calculation of guaranteed maturity unit price. The unit price is Rs10 on the first reset date. In case of the policyholder’s demise, the beneficiary will receive the higher value of the sum assured, or fund value at the applicable unit price. On his survival till the end of the policy term, the policyholder will receive the higher or fund value at the applicable unit price or guaranteed maturity unit price, multiplied by the number of units of the Apex Lock-in Fund.
I am 36 and work for the Union government. I want to invest Rs3,000 per month in a pure pension plan without life cover that has a premium payment period of 20 years. After 20 years, what would the accumulation and the monthly pension of an average plan that meets these requirements be?
—D.D. Baloni
A pension plan is a deferred annuity plan that allows a policyholder to make provisions for regular income after the deferment period (that is, after the premium payment term). Though the exact maturity amount that shall be given after the deferment period cannot be known, insurance companies take numerous factors into account—such as the estimated interest rate and the estimated inflation—while calculating the approximate amount that shall be available to a person.
On an average, a 36-year-old man would receive approximately Rs10 lakh if he pays Rs3,022 monthly for 20 years for a pure pension plan without life cover, at a growth rate of 6%. This amount is invested in an annuity to receive monthly pension.
The pension scheme allows for commutation of one-third of the total sum and is tax-free in the hands of the recipient. The monthly pension amount would, again, depend on the amount commuted as well as other factors, including the pension period chosen.
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