Buy different products for protection and retirement needs

Published in Mint on May 06 2014, Written by Kapil Mehta

I am 37 years old old and I want to buy a term insurance plan. At the same time, I want to secure my post-retirement life. My take-home salary is not more than Rs. 24,000 per month. Which term plan would be best for me and what should I do for my retirement plan?

—Saubhik Banerjee
Buy different products to address the protection and retirement needs. For protection, you need a term cover that is about 10 times your annual income, which is about Rs.30 lakh. This should cost you less than Rs.15,000 per year for a 30-year product. Since retirement is at least 20 years away, consider investing a part of your savings into equity-oriented mutual funds or unit-linked insurance.
I am 27 years old and earn Rs.8 lakh a year. I want to buy a term plan for Rs.1 crore. Should I buy two plans worth Rs.50 lakh each?
—Sneh D.
Buy a single plan of Rs.1 crore instead. There will be no difference in the speed of claim settlement. Most insurers re-insurer such high levels of sum assured. This means that a substantial portion of risk is transferred to large re-insurers. The capital base and financial strength of these re-insurers is so high that even a Rs.1 crore payment is not a problem. Ironically, if you break up the insurance into two parts, it is still likely to be re-insured with the same re-insurer, which means that claim settlement time will not differ. It makes sense to break up sum assured into smaller parts when you expect your life insurance requirement to reduce over time and plan to terminate insurances that are no longer relevant.
I run my own manufacturing unit and would like to buy term insurance that is paid for by my company but benefits go to my family. Is that possible?
—Sahil
You can buy a term cover under the employer-employee structure. Premiums are paid by the company and treated as company expense. The nominee is the employee or her family. Benefits will be paid to your nominee. Such plans can carry a conditional assignment clause which specifies that the company will pay the premium only if the employee remains employed with the company.
I am 50 years old and have diabetes. Could you suggest what kind of policy I can get for Rs. 5 lakh and Rs. 10 lakh sum insured?
—Ajay
You should buy term insurance rather than endowment or investment-oriented insurance. Insurers go deep into the nature of diabetes before issuing insurance to diabetics. They will consider the type of diabetes (I/II), blood sugar level, medication, number of years that you have had diabetes, your exercise regimen and general health condition. In most cases, there will be an increase in premium of 50-150% in standard insurance rates.

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