The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am a 34-year-old married man with a five-year-old child. I am a successful businessman with a lot of savings and have taken a housing loan which helps me save tax, so do I need insurance?
While insurance is often bought for satisfying the savings needs of a person, the basic purpose of buying a life insurance plan is risk coverage. You need life insurance to the extent that allows your family to enjoy a comfortable lifestyle, even if you are not around. This amount is generally accepted as six to eight times your annual income. Moreover, you need to cover your liabilities too. So, you additionally need life cover to the extent of your outstanding housing loan amount.
Life insurance is a unique financial instrument which has the potential to provide risk cover as well as tax-efficient savings. Life insurance also helps you plan for your retirement. It accords protection from disability and dreaded diseases as well. Hence, you can confidently stride through the various phases of your life with total peace of mind.
I am 26 years old and will be investing in a life insurance plan for the first time. There are so many options available in the market, so what is the best way to compare alternative plans?
There are broadly two kinds of plans available in the market: protection and savings products. Pure protection products—alternatively called term insurance—provide risk cover alone. The best way to compare such products is to first ensure that you are comparing options for the same tenure and age. Then, you need to look at the cheapest option among them.
For savings-oriented products, ensure you get an approved illustration from the company sales agent. Check the guaranteed and the non-guaranteed components (these have to be mandatorily illustrated as per the regulations). Ensure that the illustrations are shown at 6% and 10% (these are the current rates approved by the regulator). If you wish to be protected from the vagaries of the market and want guaranteed peace of mind, choose the product with the highest guaranteed fund value.
But as always, let not better be the enemy of good. If you have decided to buy life cover, we would recommend that you go ahead and buy it. It is one of the best tools to guarantee your and your family’s happiness and tranquillity.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife India Insurance Co.