Ask Mint Money | Do a proper financial analysis to decide an adequate life cover

Ask Mint Money | Do a proper financial analysis to decide an adequate life cover

My son is 26 years old and wants to buy a term insurance of Rs50 lakh. How much will the premium be? Does he need to undergo medical tests?

—Vinod Gupta

The indicative annual premium would be around Rs9,700 (excluding tax) for a 20-year term product. As the sum assured is high, the insurer will conduct a series of routine medical tests to assess the health of your son or as the underwriters call it “assess the risk of the life assured." These tests would help the insurer arrive at the final premium rate and life cover to be offered. Your son is doing the right thing by planning for a term insurance at an early stage in life. It is in the best interest of your son that he undergoes a routine medical test. I would suggest that your son conduct a proper financial analysis to understand his financial liabilities or obligations to decide on an adequate life cover at this point of time.

I had taken a unit-linked insurance plan (Ulip) in 2006 for a sum assured of Rs6 lakh. I have paid premiums for the last four years. I realize now that the costs I am paying in my Ulip are very high. Should I continue the plan or stop paying premium and use the outstanding fund value of about Rs73,000 to continue my insurance cover? I don’t have to pay any surrender charge after four years. Should I surrender the plan and opt for a term insurance instead?


I would encourage you to go through the illustration of the Ulip you have purchased. The illustration would give you an idea of the charges and how your fund will grow during the course of your policy. You have not mentioned your age or about your dependants. At first instance, Rs6 lakh cover looks inadequate. I would suggest that you revisit your financial goals and go for a life insurance product with the right amount of life cover. If you are looking for a pure life cover, you may go for a term plan.

Ulips are goal-based and long-term financial instruments. They provide a wide range of opportunities—highest to lowest exposure to equity—based on an individual’s risk appetite. There are different kinds of Ulips with different objectives. In Ulips, you can also use the fund switch option to safeguard your investment gains in a timely manner. For example, towards the later part of the tenor (four-five years before maturity), you may shift the accumulated amount to balanced funds in order to protect your fund. Life insurers also offer automatic or systematic fund transfer options in Ulips.

If you had chosen the current Ulip based on a long-term financial goal, see if your goals have been met.

Life insurance products are long-term instruments that help you plan for yours and your family’s future. Short-term behaviour will only take you away from those goals.

Amitabh Chaudhary, MD & CEO, HDFC Standard Life Insurance Co. Ltd

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