Published in Mint on 26th February 2018. Written by Abhishek Bondia
I am 55 years old. One of my nieces has joined an insurance company as an agent. She is proposing that I take a life insurance policy that will give me a regular income after I reach 90 years of age. After my death, the nominee gets the accumulated corpus. This is a single-premium policy. Are there really companies selling policies like these and are they a good choice for people my age? My mother lived past 90, but only by a year or two.
—Sarika Sen
The risk you are concerned about is that of a long life, past retirement age when your savings deplete. Annuity plans help address this risk. After the vesting period, an annuity plan would pay a fixed sum periodically. An annuity could be structured either for life or till a predetermined age. You may choose an option to get a corpus paid to the nominee after the insured’s death.
I don’t recommend buying an annuity plan that starts payout after the age of 90. Instead, you may want to buy an annuity plan that starts immediately after your retirement. The annuity option could be chosen to pay for life or to pay for life with a return of premium to the nominee on death. This will provide a regular source of income after 90 as well. Do note that the annuity will be taxable.
After the recent re-introduction of LTCG on mutual funds and equity shares, many people are pointing out that there is still no tax on Ulips. Would you recommend buying these life insurance policies in place of mutual fund investments?
—Nayan Gupta
Proceeds from Unit Linked Insurance Plans (Ulips) enjoy tax exemption under section 10(10)D. Long-term capital gains tax does not apply to Ulips. However, the cost structure of Ulips is higher than mutual funds. Charges such as mortality, and fund management expenses weigh down the effective yields generated. I would not suggest any radical shifts in your portfolio. Buy financial products based on your needs. Insurance should primarily be for financial security in the case of early death. Do keep in mind that the tax rules could change for Ulips as well in the future so don’t make radical shifts based just on tax rules that have a minor impact.
I bought a traditional life insurance policy 4 years ago. Then, I did not pay the premiums for the last 2 years. Can I revive it now?
—Harish Patel
Yes, you can revive a lapsed policy. Besides unpaid premiums, insurers may levy interest on unpaid premiums and administrative charges for revival. Depending on the sum assured, an insurer may also want you to go through fresh medical underwriting. If the health conditions are normal, a policy may be reinstated as-is without any caveats. You may check with your insurer about any ongoing lapsed policy campaigns. Insurers may waive interest and other charges during such campaigns.
My daughter bought 5 endowment policies. Like numerous other people, she was misled by her friends. She has already bought the pure life-term policy and thinking to surrender the rest of the policy. Premiums for these policies vary between Rs4,000 to Rs10,000. Sum assured is between Rs75,000 to Rs1,00,000. These policies were bought in 2013 with a premium payment term of 20-27 years. Policies would mature between 20 to 70 years. I assume that the surrender value would be negligible for all the above policies. However, I would like to have your opinion to cut our loss.
—Karuna Worah
You will need to do a detailed analysis to take this decision. Identify the surrender value by policy and then see whether the surrender penalty is adequately recovered if the future premiums were invested elsewhere. The expected returns on your endowment if you continue them are likely to be between 3 and 5%. Generally, if you are in the early stages of a traditional endowment, it may make sense to absorb the losses. As you spend more time on the policy, it is often better to see the insurance through to completion.
I bought life insurance for Rs1,585 at age of 55. After one month, when my medical test was completed, the insurer mailed me a counteroffer with a revised premium of around Rs 2,500. Now, what should I do?
—Jagdevsinh Rana
Premiums displayed through online calculators or mortality tables are for standard lives with normal health. If you suffer from an ailment or are overweight, then the insurers may decide to charge additional premiums to you. In certain cases, they may even decline the insurance. You do have the option to reject the counteroffer. In that case, an insurer would refund the premium paid back to you. Buying insurance as you grow older becomes more difficult. If you do suffer from an ailment then it may make sense for you to accept the offer. You are entitled to ask the insurer the basis on which they have made a counteroffer.
