Ask Mint Money | If your work involves physical risk, buy accidental death rider

Published in Mint on, Jul 04 2012, Written by kapil Mehta

I purchased a unit-linked insurance plan (Ulip) in April for my daughter, aged 22 years, for 15 years. I pay Rs 5,000 every month for it. Is this the correct way of investment?
—V.G. Karnik

This is a good investment because you are investing systematically for the long term. The Ulip you have purchased has a cap on the policy charges and this makes the plan cost-effective. Invest in a balanced fund since you prefer a conservative approach. If required, the insurer will switch the fund for you at no cost.

I had bought a highest net asset value (NAV) guarantee insurance plan. Now I am hearing that this product may be discontinued. What’s the reason?
—Adit T.

The issue with highest NAV plans is that people bought these plans assuming that premiums will be invested in equity markets and the insurer will guarantee the highest equity returns. This is not the case as insurers can shift the investments from equity to debt or liquid instruments at their discretion. So at the end of the product tenor, you may get a much lower return than you expected. Insurers do not have a magic wand to issue guarantees. Every guarantee has a significant cost and the customer needs to be fully aware of that cost.

I am 28 years old and my net salary is Rs 55,000 per month. I am planning to buy a life insurance policy as an investment as well as security for my family. Which policy should I buy? I can pay Rs 30,000-35,000 per annum.
—Vishal Pathak

Buy a term plan with a 30-year tenor for a sum assured of Rs 70 lakh. This is 10 times your annual income. The premium should be about Rs 10,000 per annum, including service tax. The remaining Rs 20,000-25,000 can be invested in a growth oriented mutual fund or Ulip. Pick a Mint50 mutual fund or an insurer with a good track record.

I am 28 years old and my annual income is Rs 8 lakh. We are expecting a baby next month. My job involves a lot of physical risk. I want to buy an insurance policy that will cover all risks. Also, can I take riders with the insurance policy. I can pay a premium of Rs 14,000 annually. Please suggest a suitable policy from the long-term perspective.

You should buy a term insurance plan with a tenor of 30 years and sum assured that is 10 times your annual income or Rs 80 lakh. This will cost you about Rs 11,000 per annum. Since your work involves physical risk, purchase an accidental death rider as well. The amount of accidental death benefit that you would get will be Rs 20 lakh at an additional premium of about Rs 1,500 per annum. So by paying Rs 12,500 you will get covered for Rs 1 crore in case of an accidental death. This is well within your budget. Several insurers offer term and accident benefit within this price range.

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