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How do money-back plans compare with FDs?
—SUREKHA
In a money-back plan, tax-free fixed proportions of the sum assured are disbursed at regular intervals during the policy term. The remaining sum assured— along with the bonus or participating profit or guaranteed addition of the policy, which are also tax-free—is paid on maturity. This plan is suitable for people who require lump sum amounts in the future to meet specific expenses, such as children’s education. The policy works as insurance protection for the family and also provides for the future. On the other hand, interest from FDs is fully taxable. However, money-back policies need commitment to pay for a long duration and charge you for providing life cover. You also need to compare the returns from an FD with that from a money-back plan over the same duration.
Do life insurance companies pay in the event of death due to a terror attack?
—SUDHIR TYAGI
All life insurance policies provide cover to the insured against death by any means, including a terror attack. So, all life policies will cover death due to a terror attack unless this peril is specifically excluded in the policy. In personal accident policies, compensation for death due to a terrorist attack is specifically provided.
What are the important features of LIC’s Jeevan Saathi policy?
—RAKESH
LIC’s Jeevan Saathi is an endowment assurance plan that covers the lives of both spouses. It involves a long-term commitment—15-30 years—to pay premiums. The minimum entry age is 20 years and the maximum is 50 years. If both spouses survive till the end of the policy term, the sum assured, along with all bonuses declared up to maturity date, is payable in a lump sum. If one spouse dies during the term of the plan, the surviving spouse gets the entire sum assured. A unique feature of the plan is that it continues to cover the life of the surviving partner without him/her having to pay any further premiums. That means the survivor gets life cover free of cost. The maturity amount is paid to the surviving spouse at the end of the policy term.
I took an endowment plan from LIC three years back. When can I surrender the policy without losing money?
—SUNAINA MISHRA
Endowment plans offer the dual benefit of life insurance cover and returns. These are long-term policies. In order to discourage early exits, the surrender value of these policies is low in the initial years. In an endowment policy, an investor is eligible to get the surrender value only after the completion of the lock-in period, which is generally after full premiums have been paid for three years. Surrender value does not accrue during the lock-in period. After the lock-in period, the policy can be surrendered at any time. At the time of surrender of the policy, every company deducts charges for providing life insurance cover for the period the policy was active and a penalty for early exit. After the lock-in period, the surrender value starts increasing every year. The time it takes for the surrender value to equal the total amount of premium paid depends on the duration of the policy and the coverage it offers.
I am 27 years old and am planning to get married in December. Which life policy should I buy?
—AALEKH
We suggest you take a term insurance plan for yourself. Term insurance is a pure life cover and is the cheapest and simplest form of life insurance. The policyholder has to pay premiums every year. However, the insurance company pays the sum assured to the beneficiaries only in the event of death of the life assured. Nothing is payable if the life assured survives the policy term. This policy has no component for savings and the premiums paid are purely the cost of buying the life cover. The biggest advantage of a term plan is that one can take a high life insurance cover at a low premium amount.
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