Your child is seven years old and you want to secure her/ his financial future. Can insurance help? How do you go about doing it?
Can insurance be used as a tool for better financial planning? What should you opt for -- term insurance, endowment policy or the unit linked insurance plan?
What is the criteria for buying insurance cover?
Get Ahead Money expert T Srikanth Bhagavat answered these and other insurance related queries during a chat with Get Ahead readers on April 11.
For those of you who missed the chat, here is the transcript.
Part II -- How to choose the best insurance policy
Fehmeed asked, I am 29 and married. Me and my wife are both working and our total income is more than Rs 12 lakhs pa. I have invested in property but no investment in any policies. Please advise what to invest in so as to avail tax benefits also.
Srikanth Bhagavat answers, You must not consider insurance as an investment. Instead, calculate the gap between your savings and future needs. This is the gap you must cover through insurance. Incidentally, you will get tax benefits, too.
don asked, I want to make an investment in the name of my niece. Can I make a one shot investment now and reap good lump sum money after 20 years? If yes let me know which investment plan is good?
Srikanth Bhagavat answers, For one shot investments, a mutual fund is preferable to insurance.
Surendra asked, Sir, I m 35yrs old and getting Rs 35K per month salary. I m having Rs 4 lakhs LIC insurance. Plz advice me how much insurance I should have? Term plan or ULIP plan?
Srikanth Bhagavat answers, There is a thumb rule which says one must have insurance atleast to the extent of 10 times annual earnings. But one should make a detailed calculation as mentioned in the earlier reply. Term plans are the most affordable and hence one can take large covers. Preferable to ULIPs.
vineetmehra asked, I have ULIP from ICICI for which I pay a premium of Rs 100,000. It's in Maximiser option. I am 28 and getting married next year. It's not easy to pay such heavy premium but I have to as my folks have forced me in to it. Do you think this is good bet in the long term or should I reduce the premium?
Srikanth Bhagavat answers, Given your age profile, the maximiser option is alright. but I do not think you can reduce the premiums now. Since your earning capability will increase as you progress, keep up the premiums.
vin asked, Which is better policy Jeevan Anand or Jeevan Tarang of LIC?
Srikanth Bhagavat answers, Jeevan Anand is better.
amit asked, which insurance policy is better for infants?
Srikanth Bhagavat answers, The best insurance policy is for the parent and not the infant. The idea of protection is to make the child the beneficiary.
sanjay asked, is there any unit linked insurance plan which is safest and can assure minimum rate of return?
Srikanth Bhagavat answers, Generally, all ULIPs have a conservative option. But since charges for all options remain similar, your eventual returns will be lower. Instead, I suggest a term plan and the savings on the premium can be directed to a debt mutual fund.
rsnsara asked, I have a 7 year old daughter. Can you suggest me a good insurance policy for her, which would take care of her studies and risk cover?
Srikanth Bhagavat answers, Ideally, insure yourself through an endowment plan for the amount you think will be required for her studies. Alternatively, take a term cover for the same extent and start a savings plan for the same objective.
gnadu asked, Hi, I am G Naidu from Bangalore. I want to know whether we can assign Keyman Insurance in favour of the Keyman after 3 years and then the maturity receipts will be totally tax free in his hands?
Srikanth Bhagavat answers, According to current regulations, only term plans are allowed as Keyman policies.
srikanth asked, Hi Srikanth, I have an endowment policy and a ULIP? Also I invest regularly in ELSS. I'm planning to go in for a term insurance for Rs 15 lakhs; my age is 31 years, suggest which is the best in the market today?
Srikanth Bhagavat answers, For Rs 15 lakhs, Kotak Preferred Term is the cheapest. For higher amounts, consider Metlife, HDFC or Max New York Life.
a asked, is there tax benefit on plain term insurance?
Srikanth Bhagavat answers, Yes the same benefits as other life insurance plans, under Sec 80C.
rajni asked, are ULIPs better than mutual funds for long term? How do they compare with costs?
Srikanth Bhagavat answers, Over the long term, ULIPs whose charges are not heavily loaded upfront will give you better compounding. Further, some have lower charges than a mutual fund, in which case they will give better returns. Though the discipline of saving will be there, you will not have the flexibility of changing the fund manger as in mutual funds.
vkthakker_1965 asked, hello sir, I want your opinion about Bajaj Life Insurance ULIP plan.
Srikanth Bhagavat answers, Lower charges of 5 per cent is good. But consider that the lock in period of 10 years is higher here. (The positive aspect of this is that you will not be tempted to withdraw your savings).
Sajjan asked, Hello Srikanth, My CTC is Rs 2.1 lakhs pa and what will be the ideal plan to save I-tax for my CTC? Please suggest.
Srikanth Bhagavat answers, Any plan will give you tax benefits. My suggestion is that you plan your total need for protection, and then buy the insurance. This way you make better use of the tax benefit the government is giving you.
Harshad asked, I am 27 years old and would like to invest Rs 25,000 per annum. Where should I invest? Insurace and Unit link policy or Mutual fund?
Srikanth Bhagavat answers, If you have dependents, calculate the amount you need for their survival after your death.The balance can be invested in mutual funds.
Surendra asked, Suppose I have taken a term plan of Rs 10 lakhs from ICICI and Rs 15 lakhs from Reliance and if something happens to me then my dependents will get Rs 25 lakhs from two companies. Is it advisable to do one term plan or 2-3 from different companies?
Srikanth Bhagavat answers, Choosing more than one company may increase administrative hassles for your beneficiaries after your death. Since these companies are well regulated by IRDA, I think you can choose any one company and go ahead. If you do want more than one company, make sure you declare your other policies in the application.
santosh asked, Term insurance will cover only upto 60 years Max?. What should I do after that?
Srikanth Bhagavat answers, I am aware that some policies including Metlife offer covers upto 65 years. But by the time you are 65 years, you must have sufficient savings so as not to need insurance.
suglo asked, which policy at age of 28?
Srikanth Bhagavat answers, Insurance is needed if you have dependents. Till then, focus on savings through funds.
gnadu asked, Sir, thank you for replying. Agreed that only term plans are allowed as Keyman policies. But what I am asking is that during the tenure of the policy, the premium is a deductible expense for the company. Now, if the company assigns the policy in favour of the Keyman just one year before the maturity, can the Keyman get the maturity amount in his personal file fully free from tax?
Srikanth Bhagavat answers, It will be tax free for the Keyman.
Part II -- How to choose the best insurance policy
