Individual Insurance

Published in Mint on, Feb 05 2013, Written by Kapil Mehta
I have heard that commissions for unit-linked insurance plans (Ulips) are high and that is why many agents are trying to push them on people. Should I buy a Ulip to save tax since it will also give me equity exposure?

Commissions on Ulips used to be very high before September 2010. At that time the regulator introduced guidelines that resulted in considerably lower Ulip commission. Nowadays, agents typically earn between 5% to 8 % of your first year premium and 1% to 2% of renewal premium for three to four years. The Ulip becomes cost effective if held for at least ten years. If you have a shorter time frame in mind, then products such as mutual funds or exchange traded funds may be better.
What is an employee deposit-linked insurance (EDLI) scheme? Is it mandatory firms?

All companies that fall under the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952, need to provide EDLI to their employees. EDLI is linked to the provident fund amount. This is a statutory requirement and can be purchased by paying the Regional Provident Fund Commissioner or by buying group EDLI from a life insurer. Many firms prefer to purchase EDLI from a life insurer because it can provide better benefits and sometimes are more cost effective.
Online term plans offer better coverage than an offline one is what I have heard from various sources. Could you throw some more light on what are the advantages of buying a term plan online vis-a-vis buying it offline?
—Dev Shukla

The most significant advantage of buying online term plans is that it is at least 30%. If a 30-year-old person buys a plan with a sum assured of Rs.1 crore for 30 years, this means a savings of about Rs.4,000 each year. Over ten years that is a large sum.
The disadvantage of online term is that you do not have the benefit of an intermediary who can advise you. Intermediaries can present you with options, help you with documentation, present your case to the insurer if you have non-standard documentation or medical conditions and, if required, follow through with the claim. A few insurers have addressed the issue of intermediary advice by introducing cheap online products that allow intermediaries. Buy online if you are confident of researching and purchasing on the Internet and do not feel the need for advice.