Reader's corner: Life Insurance

I want to buy a term policy. How do I select the insurer or should I go for the cheapest plan available online?

It is always prudent to stick to some of these basic guiding principles while purchasing your term plan. First and foremost check the claim settlement ratio of the company and the insurance company’s reputation to ensure it is the right choice. Insurance is a long-term contract and it is important that the company offers a seamless insurance experience and keeps its promise in the hour of need. This should be followed by the features offered (add-ons/ riders), sum assured, premium paying term and the premium amount to be paid. A plan that has a balanced mix of all these elements should be the right term life insurance plan for you. 

What is the ideal life insurance amount for a person earning Rs 1.2 lakh a month and a family of four?

The ideal life insurance cover depends upon the human life value of each individual, his or her age and the liabilities and/or assets owned by him/her. It is always advisable that one should have an ideal life cover which is minimum 10 times of one’s annual income plus outstanding loans and major future expenses such as education and marriage. The cover should ensure complete financial protection for the insured’s family in case of an unfortunate incident. However, If an individual expects to build a corpus for a future financial event such as child’s education and/or wedding, he/she might also purchase a policy for a specific sum to meet such future lumpsum commitments.

I am taking a home loan of Rs  60 lakh. The bank is forcing me to take a life insurance policy from its partner insurer. I already have two term plans totalling Rs  78 lakh. When I told this to the bank, they said the policy needs to be assigned to it, and assigning an existing policy to the bank is not possible? How true is that?
 

You can always assign your policy to the bank and can do it anytime between the policy term. You will have to just ensure that your policy should be an active one. In your case, since the premium for the new plan offered is much higher it will be prudent to assign your existing policy to the bank.

 I have an endowment policy with a yearly premium of Rs 18,500 and sum assured of around Rs  4.5 lakh. I am paying premium for almost a decade. Few years after buying the policy, I realised that I can get better returns by investing in other instruments like mutual funds, and I have been doing that to build a corpus. Should I continue with the policy?

There are various financial instruments today but all are meant for different outcomes and shouldn’t be compared. In your case, you should first evaluate the reason for which you are building the corpus and your future plans. Endowment plans are a great mode of disciplined way of saving money to cater to future financial needs and also offers you protection. Unlike other instruments which are only active till you are active, an added advantage of endowment plan is the life risk cover which protects financial goals and is a great help to the family in case of an unfortunate event in the insurer’s life. It is risk free with guaranteed sum assured and also offers tax benefits. Therefore, it is always wise to hold on to your endowment policy.
The writer is MD & CEO – BSLI & Dy. CE – ABFSG. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in.