Ask Mint| Term policy should be based on needs

Ask Mint| Term policy should be based on needs
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First Published: Tue, May 18 2010. 10 33 PM IST

Rajiv Jamkhedkar. CEO, Aegon Religare Life Insurance
Rajiv Jamkhedkar. CEO, Aegon Religare Life Insurance
Updated: Tue, May 18 2010. 10 33 PM IST
Should I take two life insurance policies having two different nominees or one policy with two nominees receiving equal sums? Which one will work out cheaper?
—Janardan Swamy
Rajiv Jamkhedkar. CEO, Aegon Religare Life Insurance
One policy can have two nominees where the amount of money payable to each nominee can be specified. In this case, if the sum assured is high, some products may even give you a rebate on the premium. If you are taking two policies with the sum insured split between them, the total premium under both the policies may be the same or higher. Thus, splitting the sum assured into two policies may not be a good idea.
I need some money urgently now. Can I take a loan against my insurance plan taken 10 years ago? List the pros and cons.
—Aditya Mathur
A few life insurance contracts offer loans against the policy. Check whether your policy offers one. This type of a loan is normally treated as a secured loan since the loan is given against the value of the policy. The applicable interest rate could be lower than other unsecured loans, such as a personal loan. The principal amount of the loan along with interest is payable in instalments over a period of time chosen by you. However, if you default on the loan, the outstanding amount along with the interest will be deducted from the maturity claim.
What is Irrevocable Life Insurance Trust?
—Sicilia Y.
The Irrevocable Life Insurance Trust (Ilit), like other irrevocable trusts, cannot be withdrawn, amended or modified in any way once it is created. The ownership in the policy is assigned (transferred) by the policy owner to the Ilit. This is done by making an assignment in favour of Ilit by signing the relevant form. Once the policy owner assigns the policy to the trust, he cannot reclaim ownership of the property or change the terms of the trust. After the death of the insured, the trustee invests the insurance proceeds and administers the trust for one or more beneficiaries. Ilit becomes the owner and beneficiary of the life insurance policy. Spouse and/or children can be made trustees and/or beneficiaries in the trust.
I have just started working and want to take a life insurance for myself. I can’t afford a large premium at this stage. Should I postpone taking a cover, or take one now and bump it up later?
—Kunal Ojha
Buy a term plan as soon as possible. Taking a term plan early on will get you higher protection at a low premium rate. Do a needs-analysis and take a cover based on your insurance requirement. As you grow older, you may have additional responsibilities, family obligations and liabilities. But your income would rise as well, enabling you to afford higher premiums. You can then increase your life cover by either topping up your existing policy or by taking a new one, depending on your needs-analysis. You also have the option of increasing term assurance policy, where the life insurance amount increases every year.
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First Published: Tue, May 18 2010. 10 33 PM IST