Published in Mint on 5th July, 2017. Written by Abhishek Bondia
Are there any life insurance plans that cover people suffering from obesity?
—David L.
Obesity is not necessarily excluded in life insurance. However, as your Body Mass Index (BMI) increases, insurers tend to raise premiums. The extent of increase depends upon several factors including your age, product being bought and your actual weight. If the BMI is beyond an insurer’s acceptance threshold, then the proposal would be declined. The tolerance for high BMI will be more in investment-oriented plans where the sum assured is low, and much lower for term plans.
How useful is a premium waiver facility?
—Shefali Dubey
Premium waiver is useful in child plans where future premium requirements are waived if a parent dies. This ensures that the child gets the maturity amount that was planned for even if the parent dies. This helps parents prepare for important milestones in their children’s lives such as education. Other premium waiver plans that are linked to terminal or critical illness are less useful because in those situations your need is for a lumpsum benefit, and premium waiver, though useful, may not be the most pressing need.
I have recently taken a home loan of Rs30 lakh. I have been advised to enhance my life insurance. The existing cover is of Rs50 lakh, through a term policy.
—Shikha Singh
You should have a minimum term cover of at least 10 times your annual income. And, you should enhance this to cover any liabilities such as home loans. Considering your loan itself is of Rs30 lakh, you should certainly enhance the coverage amount. You will need to buy a new term plan for the additional cover. The tenure of this plan can be linked to the home loan payment period. There are also some plans that exactly match the mortgage in terms of outstanding amount and return a cash value if you pre-pay. Of the two, I prefer level term plans since they tend to be more cost-effective.
What are the typical annual returns in an endowment product? My agent advised me that the bonus in a product is around 10% and benefit illustration also has a 10% return. Would you recommend a unit-linked insurance plan (Ulip) over an endowment product?
—Baldev Dhillon
Typical endowment products yield a return of 3-4%. Bonus features in a policy are linked to the overall sum assured of the policy and not the annual premium paid amount. So, a 10% bonus does not represent 10% return on money invested. Benefit illustrations do not have a 10% return. They typically illustrate your returns if the underlying insurance investments grow at 4% or 8% per annum.
If your illustration does not have two options and shows 10%, then it is not genuine. Ulips and traditional endowments are different. In Ulips, there is an underlying market risk that you bear. However, there are caps on the reduction in yields and after 5 years you can withdraw your funds with no penalty. In traditional plans, the returns are less volatile but typically lower and interim withdrawals are expensive. If you have a long-term perspective and are comfortable with market risk, then Ulips have an edge.
I want my parents to buy life insurance for themselves so that if one is no more, the other spouse has enough financial security. My mother is 70 years old, and my father is 72 years old. While I can support them comfortably, they are keen to retain their independence. They have investments in fixed deposits, which are maturing now, and pension. At present, their expenses are met through these two sources of income. Please advise.
—Vijay Sethi
Since your parents are elderly, it is unlikely that they will get life insurance, or the premiums will be high. The more pressing need appears to be a steady monthly income, perhaps higher than what they have today, to cater for increasing costs and healthcare. You may consider an immediate annuity plan that continues as long as at least one parent is alive. For a single premium payment of Rs20 lakh, a monthly pension of about Rs14,000 could be expected as long as at least one parent is alive. Since you have expressed a desire to have them retain their independence, you could buy them this immediate annuity and let the monthly income be paid to them lifelong.
Annuity products usually offer low returns. Therefore, you should benchmark annuity returns with existing fixed deposit returns, and other senior citizen specific non-insurance schemes before making a choice.