Life Insurance: Deepak Sood

Three years before, I bought a pension plan (with a life cover) from a private life insurer. With new regulations for pension plans, should I exit the ongoing policy and buy a new one? I am 42.
It is not in your interest to exit your pension policy, though you may buy a new one. The Insurance Regulatory and Development Authority (Irda) has mandated that pension plans introduced from September 1, 2010, under the unit-linked insurance plan (Ulip) guidelines, must give a minimum guaranteed return. It will be linked to the average of the previous year’s reverse repo rate declared by the Reserve Bank of India, subject to a minimum of three per cent and a maximum of six per cent every year.

 

For the current financial year, the guaranteed rate is 4.5 per cent. Life cover is not necessary, but annuitisation is compulsory on maturity or surrender, though you may take up to one-third of the corpus in lumpsum. Annuitisation means you have to buy an immediate annuity and the policy proceeds may not be available to you as lumpsum. The new Ulip pension policies are expected to limit the upper return due to minimum guaranteed rate under these.

I want to take an insurance policy for my two-year-old son? Should I take the policy in his name or mine?
Life insurance policies are taken to protect your family and dependants, in case of any unfortunate event (death, disability or illnesses) to the breadwinner. It is always advisable that a life insurance cover is first sought on the life of the breadwinner. Also, it should be adequate.

Mostly, when parents wish to take a policy in the name of their child, they imply the policy money, as and when available, should be used for the benefit of the child. If it is so, you can make your child a beneficiary in your policy.

Life insurance policy can also be taken on the life of a child. In this case, one should be careful that the earning parent’s life is covered and a premium waiver benefit is sought. Else, the policy will leave a liability for the family on death/disability of the earning parent, as the family will be required to pay the premium.

Is it true that one can stop paying for or use a switching option for Ulips that have not performed well? How will I know if my policy has performed well?
To check if your Ulip has performed well, find out the net asset value of the funds you have picked, as against a benchmark you have set that could be either an equity index (say Sensex) or a combination of fixed interest and equity index. However, you should not exercise the switching option on the basis of the past performance of funds.

Switching should be exercised when you think the equity or interest rate is going to move in a particular direction. For example, if you believe interest rates are rising, you can switch to equity funds, provided you are bullish on equities. In case you feel the equity market is declining or is uncertain, you may move to a fixed interest or money market instrument fund.

To stop payment of premium under a policy is not in your interest. According to Irda’s new Ulip guidelines, if you stop paying the premium for a Ulip, the policy will be treated as discontinued. Such a policy will no longer participate in the growth of fund. The life cover will also be discontinued and the fund value accumulated, as on the date of discontinuance, will be kept in discontinued fund after deducting surrender charges, as applicable depending upon the tenure and premium of the policy and other applicable charges. Hence, it is advisable to continue paying the premium.

The writer is the managing director and CEO of Future Generali India Life Insurance. Send your queries to yourmoney@bsmail.in