Several life insurers offer immediate annuities

Published in Mint on, May 14 2013, Written by Kapil Mehta

I am 29 years old and have a term insurance with a premium of Rs.16,500 for Rs. 1 crore cover. I bought it last year. Recently, I saw that the same company has also launched online term insurance, which is cheaper by Rs.4,000. Will it make any sense for me to stop the current insurance and take the online version? Are there any variations in the terms or benefits?
—Harsha

Online and offline term insurance covers have similar benefits. Offline plans allow you to add on riders such as critical illness and personal accident. However, this distinction is also disappearing as online plans are becoming more sophisticated.
Buy online if you are comfortable making an online purchase. Compare prices across various insurers and not just your current provider. Comparative prices are readily available on web aggregators’ as well as the insurer’s websites. Purchase term from one of the low cost providers. I recommend that you retain your current policy until the new online term plan is issued. The last thing you want is to lapse the current policy and your application for online term gets rejected.

I want to buy an annuity for my 32-year-old son so that he gets Rs.20,000 each month. What are my options?
—Atul T

There are several life insurers that offer immediate annuities. However, only a few will give an annuity to someone under the age of 40. You can pick from several options. My preference is for an annuity for life with return of purchase price if the annuitant dies. There is also a good option where the annuity increases at a fixed rate each year, typically 3% or 5%. This helps provide an inflation-adjusted annuity.
You will have to make a single payment of about Rs.35 lakh to get Rs.20,000 per month for your son. When your son dies, the purchase price of Rs.35 lakh will get paid to his nominee. Keep in mind that there is no surrender value in these policies and the annuity will be added to your son’s income and will be taxed. You will need an age proof to get the annuity and no medical examination is required.

I am in the process of buying a term insurance for Rs.3 crore. The cheapest term plans are offered by the newer insurance companies. Are they safe to invest in?
—Sandeep

Term plans by newer companies are quite safe to invest in. There are two reasons for this. First, the insurance regulator makes sure that all insurers have sufficient capital to meet their claim obligations. Second, insurers themselves mitigate their risk through reinsurance. For a Rs.3 crore insurance, it would be quite typical for the insurer to retain just Rs.10-20 lakh of risk and transfer the remaining risk to reinsurers. These reinsurers have strong financial standing and are easily able to absorb individual claims.

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