Published in Mint on Sep 29 2016, Written by Abhishek Bondia
Can a policyholder have multiple e-insurance accounts if he has insurance policies issued by various insurers?
—Nitin Sharma
Every investor should have only a single e-insurance account. Using one account, you can store multiple insurance policies issued across various insurers. The purpose of a single point of access for the policyholder is defeated if multiple e-insurance accounts are created, which is why it is not allowed.
How does a life-cum-annuity plan work? Is it better or worse than a plain term plan?
—R.P. Bhatia
A life-cum-annuity plan is essentially a savings plan that builds a corpus to buy an annuity at retirement. If the insured dies before the annuity starts, a lump sum is paid to the nominee.
Term insurance and an annuity plan cover different risks. A term plan covers the risk of early death and provides a lump sum benefit to the nominee in case the insured dies. An annuity is a hedge against living longer, when the earning capacity has gone down. Annuity provides a regular income to the insured.
Typically, the sum assured in a life-cum-annuity plan is low. A low death benefit ensures less deductions from the investment corpus for annuity. This defeats the purpose of a term insurance. Also, generally, insurers that have the best annuity rates, do not offer the lowest charges for term cover. You should buy a term plan with a cover of at least 10 times your annual income. You should choose the lowest-cost plan amongst the ones offered by insurers, with a claim settlement ratio of at least 90%. For retirement, you should build an independent corpus through alternate savings instruments. At retirement, you can buy an annuity plan with the corpus.
What are the benefits of group life insurance plan over an individual plan?
—Arshi Sankla
A group life insurance plan is generally bought by employers to cover their employees. It has three major advantages over an individual plan.
First, group insurance rates are negotiable, compared to individual insurance rates that are standard. Bulk buying provides a leverage with the insurer and generally helps in getting lower rates.
Second, group life insurance plans have the feature of ‘free cover limit’: only people with sum assured above this limit, or a specified age, are required to undergo medical check-up. This allows easy issuance of cover most people.
Third, it is possible to get waiver of suicide exclusion in a group policy. In an individual insurance, suicide is excluded for the first year.
The disadvantage of this plan is, rates need to be negotiated each year and you must be a part of the group to get the benefits. Individual plans do not have such restrictions.
Is there a minimum time for which a unit-linked insurance plan (Ulip) has to be subscribed?
—Ruchita Bhatt
There is no minimum number of years threshold for a Ulip. In fact, several Ulips are single-premium plans. In such plans, you have to pay premiums only once. But rules allow you to withdraw money from a Ulip plan without any charges only after 5 years. So, you can consider this the minimum holding period for Ulips.
Should i buy critical illness as a rider in life insurance or as a stand-alone plan?
—Kavya Ahluwalia
While choosing a critical illness cover, you should evaluate three aspects: the number of critical illnesses covered, sum assured and cost of coverage. On these counts, stand-alone critical illness cover has an edge. Such plans commonly cover over 20 diseases.
Riders tend to cover fewer diseases. Similarly, the sum assured in stand-alone plans is often higher than riders. The cost of stand-alone plans tends to be higher but that’s because of the wider coverage.