What’s a systematic transfer plan?

What’s a systematic transfer plan?

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.

Recently, while going through the key features of a Ulip (unit-linked insurance plan), I read about the “systematic transfer plan". Can you explain this in detail?

A systematic transfer plan is a feature in Ulips that provides the policyholder with an option to phase out his/her entry into the equity market at different times and at different levels. This has an effect of averaging out the risks associated with the equity market, reducing the overall risk to the policyholder’s portfolio.

I have decided to take a term policy, but came to know that there is no cover for the first three years in these policies. Is this true? Can you please explain term insurance?

I am glad to be able to tell you that this is incorrect. The life cover in term insurance is available from the day the policy comes into force. Term insurance is designed for those who are interested solely in death benefit. Term assurance offers pure protection without any investment element.

A person can buy term insurance that covers him till he reaches a certain age, which is usually 60-65 years. Term assurance policies expire at the end of the term. If one dies at any time (even during the first three years) before the term ends, his beneficiaries will get the sum assured.

If he is still alive at the end of the term, the policy expires, and there is no payment.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Bert Paterson, managing director and CEO, Aviva India.