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 25-year-old man working with a leading hospitality chain. I wish to invest in life insurance, but I am a little confused. What is a traditional insurance plan, and is it better than a Ulip (unit-linked insurance plan)?
The key difference between the two is that in a Ulip, the customer decides whether he wants to invest his money in the equity, debt or money markets, whereas in traditional plans, your money is invested in a predetermined manner, as
suggested by the Insurance Regulatory and Development Authority. A traditional plan generally has some inbuilt guarantees which assure you a certain sum (called the sum assured), both in the event of death and maturity. Many traditional policies also have guaranteed returns over and above this sum assured. In a Ulip, generally, the sum assured is guaranteed in the case of death only. Hence, a traditional plan would be more helpful if you want to guarantee your dreams. In a Ulip, however, you will assume the investment risk and participate in possible higher returns as well.
I am 25 years old. I want to invest in a life insurance plan. How do I decide the duration of the policy I should go for?
The duration of the life cover depends on a number of factors, including the age of the individual, the age of dependants and income, among others. Therefore, the term of the policy has to be determined on a case-by-case basis. Ideally, the term of your policy may be equal to the number of years your family is likely to remain financially dependent on you. Practically, however, one has to also see how long one can support a policy in terms of payment of premium. It is advisable to strike a balance between the premium payment term and the period of risk cover.
Readers are welcome to write in with their queries to email@example.com. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife.