Ask Mint | Life insurance can be used as loan collateral

Ask Mint | Life insurance can be used as loan collateral
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First Published: Sun, May 10 2009. 09 56 PM IST

Updated: Sun, May 10 2009. 09 56 PM IST
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.
My spouse and I are professionals working in reputed companies. We have two children, aged 11 and 16. For our children’s future as well as our post-retirement days, we have invested in a sufficient number of bonds, fixed deposits and real estate. Do we still need to invest in life insurance policies?
The decision to buy life insurance depends on your responsibilities and financial needs for the future. Since your children are still economically dependent on you, it is essential to provide them a cover that will give them financial security in case of any eventuality. Moreover, you can use life insurance as collateral for loans, retirement income, and to finance tuition for your children, etc.
Life insurance policies are comparable with other savings instruments available in the market. A key advantage of insurance products over certain other savings instruments is that there is a tax rebate on premiums paid for certain income groups up to a prescribed amount. Also, the policy proceeds are tax-free, thus providing a high net yield.
For proper financial planning for yourself and your children, it is therefore imperative to have a judicious mix of different savings instruments.
In case I decide to invest in a child policy, how would it be different from investing in a regular term insurance plan?
A term policy purely offers protection in case any unfortunate incident happens to you. A child policy has a specific objective of ensuring that by the time your child is 18/21/25 years, he/she has a lump sum for higher studies or starting a new business.
In a term policy, the spouse or any other close relative is usually the nominee. However, in a child policy, it is mostly the child who is the sole beneficiary, though it may differ from policy to policy where, at times, it might be the parent or the child who might be insured.
Readers are welcome to write in with their queries to askmint@livemint.com. 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.
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First Published: Sun, May 10 2009. 09 56 PM IST