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 a 42-year-old man working in a multinational firm. Why should I buy life insurance, considering I have two sons who will take care of me in my golden years?
India lacks a well-defined social security system and the traditional support system is weakening. So, a vast majority of us are left to fend for ourselves after retirement.
Life insurance and pension plans help you plan your finances, and provide a strong social security net in case you outlive your savings.
The main benefit of pension plans is that they force you to save regularly. Compared with other savings instruments, pension plans do not allow individuals access to the entire amount at the end of the accumulation phase. This can only be availed of periodically, by way of annuities. This mechanism ensures that you have periodic cash flow during your retirement, akin to a salary during your working days. It thus obviates the possibility of a lump sum being consumed immediately.
Hence, pension plans help you weave your own social security net.
I am 25 and single. I want to buy an endowment plan that gives me returns and also offers protection. What are its overall advantages?
Endowment policies are essentially money accumulation plans that guarantee a certain amount of cash at the end of a specified period or when an eventuality occurs, whichever is earlier. The advantage of an endowment plan is that the emphasis is on returns rather than on family protection. The protection element offered under endowment plans is temporary unlike whole life or term plans where the protection is permanent.
Additionally, premium per lakh of coverage on an endowment plan is almost twice the premium per lakh of whole life plans. The endowment plan can be used by you to save for a specific purpose, such as your marriage, with added benefit of protection to your family in case of an untimely demise. If you are looking for protection, it is advisable to go for pure term plans.
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.