The insurance business in India isn’t just growing, it is also becoming moresophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a weekly Q&A on insurance,every Monday.
How are unit-linked pension plans different from unit-linked life insurance plans?
Both unit-linked life insurance and pension plans are designed to fulfil long-term financial objectives of consumers. While the unit-linked life insurance plans are primarily meant for long-term protection and wealth creation, the pension plans are primarily designed to help consumers build a retirement fund for their post-retirement years. While the pension plan can be purchased without any life-insurance cover, which in turn results in all the premiums being used for investment, a unit-linked life insurance plan is always a combination of insurance cover and investments. Additionally, pension plans provide an annuity option at the end of the savings period and at least two-thirds of the accumulated savings have to be used to purchase an annuity to get regular pensions for life.Thus, if you require the combination of protection and investments in the same plan, then the unit-linked life insurance plan is for you; if your sole objective is to create a fund for your retirement, then the pension plan is a better option.
What are the parameters that need to be considered while purchasing a lifeinsurance plan?
Insurance contracts are long-term in nature. It is important that before purchasing any insurance plan, you should clearly articulate your financial objectives, assess the amount of annual investment required to meet your potential long-term needs, and then assess your risk-taking ability to decide what sort of a product is more suited to your requirements and circumstances. Additionally, it is important to repeat thisexercise annually, so that you can plan for your changing financial objectives and requirements.
I have received some lump-sum gains through my other investments made earlier. Should I reinvest this in a single-premium, unit-linked plan?
Single-premium plans are designed specifically to give consumers the benefit of one-time lump-sum payment and to help create wealth in the medium to long term. Unit-linked single premium plans do offer you various investment funds to choose from. You can choose the investment option that matches your investment objective.
Additionally, unit-linked, single premium products offer the facility of top-ups by which you can add to the single premium investment anytime during the policy period.
I purchased an endowment plan five years ago with a premium of Rs10,000 a year. Two years ago, I purchased a house worth Rs45 lakh by taking a loan and last year I became a father. How should I go about buying further insurance?
It is advisable that you perform a complete financial planning exercise on an annual basis. For your current life-stage and circumstances, a two-step plan is advisable. You should purchase life insurance to cover the liability of the loan that you have taken for your house. There are many products provided by insurers to specifically cover housing loans. These are available in various options of single and regular premium payment and you can choose one depending on the premium you would like to pay. These products are relatively less expensive, as they provide only insurance-cover without any savings component.
Second, you can consider purchasing a children’s plan provided by life-insurance companies. It is always wise to start planning early for your child’s future, as it ensures that you give your investments more time to grow.
Readers are welcome to write in with their queries to firstname.lastname@example.org. Their questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife India Insurance Co. Pvt Ltd.