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 want to invest in a unit-linked insurance plan but I do not have enough knowledge of the stock markets to manage my funds prudently. I don’t know which funds to opt for and when to switch from one fund to another. What should I do to ensure maximum advantage from markets on my investments?
Even if you are not market savvy, the insurance companies do offer options that help you manage your funds prudently. Simply speaking, these options will increase or decrease your exposure to the markets, keeping in mind your age, risk appetite and other requirements.
To explain it better: The AAA, or automatic asset allocation, feature automatically decreases your exposure to equity and increases exposure to debt as your age progresses.
Research shows an individual’s risk appetite typically reduces with age and he tends to be more conservative with his investments. This option provides you with the flexibility of leveraging the returns from the equity market and securing the profits by way of AAA as you advance in age.
The systematic transfer plan allows you to enter the equity market regularly, at different times and at different levels. This has the effect of averaging out the risks associated with the equity market, thus reducing the overall risk to the policyholder.
However, these options are available with select insurance companies and on select products. For more specific details, you could ask a financial planning adviser to contact you.
What do you mean by traditional insurance plans? Please explain the key benefits.
A traditional insurance policy comes with a minimum guaranteed benefit payable on maturity, which is specified at the time of purchasing the insurance plan. In this case, the onus of investing the policyholder’s money is completely with the insurance company, while the policyholder enjoys the defined benefits.
Typically, insurance companies invest conservatively in bonds and debt funds for traditional products. A traditional policy has many variants such as a simple term plan, where the nominees of a policyholder get the sum assured only in case of the unfortunate death of the policyholder.
There are also endowment traditional plans where, along with a risk cover, the policyholder gets a minimum guaranteed amount on maturity of the policy. These plans also come with a bonus option which is payable on the sum assured in case of death or maturity.
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 T.R. Ramachandran, managing director and CEO, Aviva India.