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 25, in good health, and have no dependants. Is there any advantage in buying insurance now?
Yes, there are advantages to buying a life insurance policy early in life. The premium you pay depends mainly on two factors—your age and the policy tenure. The younger you are, the lower your premium. At a younger age, you would be physically sound and not likely to suffer from illnesses. This would entitle you to a lower premium. Thus it is advisable to start early and stay invested to benefit from cheaper premiums as well as what Albert Einstein reportedly referred to as the eighth wonder of the world—the power of compounding.
I am 40 and have accumulated policies I want to reduce, possibly replace. Is this possible?
Yes, it is, but it is better to weigh the options carefully. Cancelling existing policies may result in some financial loss. Before replacing a policy, compare the two policies on price, guarantee periods and available options. Most importantly, don’t cancel any existing coverage until the new policy has been approved, paid for and delivered to you.
I am 30 and want to invest in a plan that doesn’t have high charges and is simple. I am not looking at returns right now.
The simplest form of life insurance is pure risk cover, known as term plan. The term plan pays the specified amount to the family in case of the policyholder’s death, but has no savings component i.e, there is no benefit payable to the policyholder. Since the premium for a term plan is low, a person may get adequately insured for a relatively low premium cost. If the prospect of no savings doesn’t agree with you, you could consider a term plan with return of premiums or a TROP. A TROP provides the same benefits as a term plan, but in addition, returns all the premiums paid to the policyholder in case he or she survives till the end of the term.
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 Rajesh Relan, managing director, MetLife.