A switch applies to existing funds and not future premiums

Published in Mint on 14 April, 2015, Written by Abhishek Bondia

When should one purchase life insurance. And how much insurance should one take? I am a 32-year-old woman and will be getting married in December. At present, I do not have any dependants.
—Gayathri Ramachandran

Life insurance should be taken once you start earning and have dependants. Sudden death of the individual will lead to loss of future source of income. Term insurance is generally not recommended for people without active employment. At a young age, immediate liabilities might be limited. However, one should plan for future liabilities as well— maintenance and healthcare for retired parents and children, for example. The common recommended insurance amount is 15 times of annual income.

Can I change the nomination in a life insurance policy? If so, how do I go about doing it?
—Farhan Sheikh

Yes, you can change the nomination on your life insurance during the policy term. The process varies slightly across insurers. But the broad process is to submit a nomination change request form along with proof of relationship with the new nominee.

What is the difference between switch and redirection?
—Kamini Inder

Switch and redirection are both relevant in the context of a unit-linked insurance plan (Ulip). A Ulip has multiple funds that differ based on their equity and debt allocation. A switch enables the allocation of the existing funds to a new fund. Most plans offer a few switches free during the year and thereafter charge for each transaction. Do note that the switch applies only to existing funds and not future premium payments. To allocate the future premiums differently, one needs to use redirection.
Generally, at the time of initial policy issuance, one needs to declare the desired allocation of funds. All future premiums are allocated to various funds based on the originally declared allocation. If one wants to change this original allocation formula, then redirection is used. Redirection helps change the fund allocation for all future regular premiums. Generally, insurers do not charge for redirection.

Can I buy life insurance paid for by my company but where my nominees get the matured amount or death benefit?
—N. Rathod

You can purchase insurance under an employer-employee scheme. In this, the premiums are paid by the employer and benefits assigned to the employee subject to certain conditions such as a minimum tenor of employment. The insurance is underwritten based on the health and financial status of the employee.
A few insurers also put a restriction that the employee must not be a major shareholder of the company paying for the insurance. This is to ensure that the nature of the product is a perquisite to employees rather than tax arbitrage.

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