Readers' Corner: Life Insurance

I am planning to purchase a life insurance policy with a guaranteed return. I am confused between participating plans and the ones that offer full guaranteed returns. Help me decide.

Participating plans offer returns which are partially guaranteed, and the upside is delivered in the form of bonuses. In a non-participating plan, all the benefits are guaranteed upfront. Selection of the scheme depends on your risk profile. If you cannot take any risk with your investment, non-participating or fully guaranteed plans work best. In case you are willing to take some risk and looking for potentially higher returns, then participating plans will best fit your needs.

I am planning to take a Rs 3.5 million home loan. I have heard that the borrower should buy life insurance with a home loan. How does it help?

A life insurance policy, like a term plan, helps to mitigate these risks. It also comes with critical illness add-ons. If a borrower gets a life-threatening disease, the payout from the add-ons helps in the treatment. You should opt for a term plan against the loan amount, preferably with a critical Illness plan. You can also opt for a decreasing term plan - a typical mortgage redemption plan where the sum assured decreases every year by a fixed percentage, as the outstanding balance of your loan reduces. it will ensure that you are covered against all possible risks.

I am 40 and had purchased a money-back policy at the age of 21. It will mature next year. I do not have any other life cover. Should I opt for a life insurance policy now?

It is essential for any earning individual to have a life insurance cover until his age of retirement. Since you will not have any coverage from next year, it is essential for you to get yourself covered at the earliest. You should, therefore, asses your financial responsibilities, health condition, dreams and goals and then opt for a policy that adequately covers you and your financial obligations until your retirement age.

I am 27 with an annual salary of Rs 700,000. The organisation that I work for has offered term plan with a base amount of Rs 1.5 million. Is it advisable for me to opt for an additional term plan?

The primary objective of life insurance is to eliminate the financial burden a family might face in case of an untimely death of the earning member. An ideal level of cover is dependent on a person’s income, expenses and standard of living. As a thumb rule, for your age, it is typically recommended to have a life insurance cover of 20 to 25 times of your annual income. It is also essential that you are covered until your retirement age. Opt for an additional term plan for the balance sum assured.

I am  37 and planning to purchase a savings-cum-life insurance plan. Someone suggested that I should opt for a disease-specific plan that offers lump sum amount on detection of an illness like cancer along with it. How does it work? Does it make sense to purchase such additional policies with a life insurance plan?

All of us have the following risks in our lives – living too long, dying too early and succumbing to a critical illness. While your savings-cum-life insurance plan will take care of the first two risks, there is always a chance of the third one. With the spiralling costs of medical expenses related to critical illnesses like cancer, heart or renal diseases, a cover for the same has become inevitable. Such products will help you in keeping your financial responsibilities, goals and dreams shielded even when you are unable to earn. Opt for a disease-specific or critical illness plan along with your savings-cum-life insurance policy. You can purchase two separate policies from the same insurer or can opt for a disease-specific or critical illness rider.