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Published in Mint on 16th 2014, Written by Abhishek Bondia

I will turn 27 next year; my mother has told me that I should get myself a life insurance plan. What are the benefits of buying a policy early in life?

There are several advantages to buying life insurance early. First, the rates are low because your longevity is higher. Second, you are far more likely to be healthy when young and insurers will readily issue you insurance. Premiums increase and insurance issuability goes down as you grow older. Your primary life insurance should be a term cover. In this plan, name your dependants as nominees.
The second cover that you could consider is an equity-oriented unit-linked insurance plan. However, be clear, that the purpose of this will be systematic savings and investment returns over a 10-year or higher period.
Can I change my nominee?
—Malini Shinde

Changing the nominee is a simple process. Fill up a request form available in your policy docket or the insurer’s website and submit to the insurer. I have seen some situations where the insurer asks reasons for change and the relationship of the nominee to the person insured. Once these queries are addressed, the nomination change gets done.
Are there insurance plans to help with retirement planning?
—Javed Mirza

A pension plan can help you plan for retirement. It has two parts: fund accumulation and annuity. During the fund accumulation stage, your premium may be invested in equity or debt. Generally, younger people would be better off accumulating a fund over 10-15 years in equities. The annuity part of a pension allows you to take the accumulated corpus and convert into a monthly or annual income. There are several kinds of annuities available, ranging from annuity for life to annuity for life followed by return of premium on death to a fixed annuity for a certain number of years. I find the annuity for life with return of premium best in terms of underlying rates and usability. There are two important aspects one should be mindful of. First, if you do not buy an annuity on maturity then two-thirds of the maturity amount is taxed. Second, annuity is treated as income and taxed.
We are a start-up funded by an angel investor. The investor has asked us to buy a keyman policy. How does this work?
—Sandeep Das

Keyman is a term insurance cover bought by the company on a key person’s life. Premiums are paid by the company and treated as an expense. If the key person dies, then the sum assured is paid to the company. The sum assured is taxed. It is particularly relevant in start-ups where the investor funds a business based on the capabilities and drive of the founding entrepreneurs. The sum assured is meant to cover costs of finding a replacement key person and also the losses that the business may suffer.