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.
Can a life insurance company construct a customized fund for the policyholder?
An insurance company usually offers a choice of different investment funds and the policyholder may opt to invest his/her contributions among the offered investment funds in any desired proportion, depending on his or her risk appetite.
So, to the extent that a customer has this freedom and flexibility, he/she can construct a personalized fund.
However, it is not possible to construct truly customized funds for every individual as the individual can only select from within the basket of funds made available by the life insurance company.
How does a pension plan score over a normal savings instrument such as the Public Provident Fund (PPF)? Since it does not offer any guaranteed return and whatever returns it will offer in all likelihood are going to be less than that of PPF/National Savings Certificates (NSC), isn’t it better to go for a term insurance and put the difference in a savings instrument such as PPF/NSC, which at least offer guaranteed returns?
Different investment instruments cater to different needs.
The benefits specific to investments made in pension plans include regular income after retirement; tax benefits under section 80CCC for all income groups; and no upper limit on investment.
Some pension plans also offer life cover. They also provide long-term returns where you can benefit from the investment expertise of life insurance companies.
The investment made in a personal pension plan can be market-linked and can therefore offer higher potential returns compared with investments in PPF, where the interest rate is controlled.
Further, the rate of return in PPF is not fixed and can be changed any time.
I have recently started working. At the moment, I am earning Rs10,000 per month. What kind of policy can I think of investing in, as I will not be able to afford a high premium amount?
Even if you are not earning a high salary, you should still think of investing in lifeinsurance.
Please remember thatinvestment in life insurance is a long-term financial commitment. It is also a very flexible investment choice.
Currently, if you are earning less and investing a lower premium, you could still invest in a higher “sum assured” (sometimes known as “risk cover”), which provides you with more life insurance cover.
Once you are earning a higher salary, you can invest a higher amount in the same policy through “additional single premiums” or top-up premiums.
These increase the saving value of the policy and do not change the risk cover.
It is also worth noting that investing in life insurance can also help you maximize tax benefits.
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 Bert Paterson, managing director and CEO, Aviva India.