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Ask Mint Money | Ulips are for long term, don’t let short-term returns dissuade you

Ask Mint Money | Ulips are for long term, don’t let short-term returns dissuade you
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First Published: Tue, Jan 11 2011. 08 57 PM IST
Updated: Tue, Jan 11 2011. 08 57 PM IST
My wife and I both earn about Rs 10 lakh per annum and have no dependants and no liabilities yet. We got married recently and are 27 years old. What are our life insurance requirements? A general rule which I’ve observed is five times one’s annual salary. However, does insurance make sense in our case? Both of us have adequate health insurance from our employers and plan to take life insurance equal to the loan value when we take a home loan. Apart from that, do we need term insurance now? If yes, how much? I am also thinking of taking separate personal accident and disability insurance.
—Ashish Gupta
You should have a life cover for three reasons. One is to replace income in case of death. Two, to cover any liabilities such as a home loan. And three, to cover/discharge any family liabilities such as your kid’s future needs. You can opt for a life cover that covers all the three above, or a combination, depending on the policies you may already have. Some key determinants of calculating the amount of life cover are income, expenses and current liabilities. A simple rule of thumb is to multiply your current gross annual income by a factor of 8-12 to arrive at the right amount of life cover. However, individual needs, expenses and liabilities are different and hence your life cover too needs to be customized accordingly. Given your current age, your life cover should include a combination of protection and savings.
Buying a term plan at an early stage will get you protection at the cheapest premium rates. Review and increase your life cover at certain stages in life such as child birth where your responsibility towards the family increases.
I am 28 years old. I had taken a Life Time Gold unit-linked insurance plan (Ulip) from ICICI Prudential back in October 2007. I am still investing Rs 4,654 per month in this. I had completed three years of investment in this plan but I haven’t received even 5% return on this investment. I have completed the lock-in period. Please suggest how can I get rid of this investment and where should I invest now. If I do not invest in this plan now, will I get back my invested amount?
—Pankaj Kumar
Any kind of investment or long-term savings should be done for a specific goal or purpose. One of the aspects that differentiate Ulips from other investment instruments is the fact that the ideal investment horizon for Ulips is long-term and goal-oriented.
While putting your money in a Ulip, your outlook should be long term as well. Look at your fund selection in the Ulip and, if required, take some advice and make switches into high return funds. The risk is spread over a long time and you should not let short-term returns impact continuation of your policy.
Queries and views at mintmoney@livemint.com
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First Published: Tue, Jan 11 2011. 08 57 PM IST