The first step to purchase online life insurance policy is by knowing the need for it. Term plans always offer sufficient financial support to the policyholder’s family in insured’s absence, fund child’s education and marriage or help during policyholder’s post-retirement life. It is advisable to take guidance from a financial planner to find out the suitable coverage. Do detailed analysis as well as risk profiling.
Generally, life insurance India is available in various forms such as traditional endowment plans, retirement plans, unit linked insurance etc. Term insurance covers the risk of insured’s demise. Usually, it is affordable than other insurance products.
If the insured survives, he or she may or may not return the premium. An endowment policy is a non-market linked plan which provides protection and savings both. It pays a certain amount of lump sum money on maturity or in case of policyholder’s demise.
Unit linked insurance plans are market-linked long-term savings-cum-protection policies. But, these products differ in their payout structure and equity-debt ratio of investment. Pension plans could be on either ULIPs or traditional platform and has compulsory annuity policy on maturity of accumulation phase.
It is necessary to select a policy based on your risk appetite. Riders help in customizing life insurance plans. It is beneficial to know some common insurance related terms such as maturity amount, equity-debt ratio, claim amount, cash value and premium because it makes sure that you understand the policy clearly.
When customers know how much and which coverage type they need, it is easy to search different life insurance policies. Remember to check insurance company’s financial stability, claim-settlement ratio, riders and customer feedback etc.
- Explore Several Modes of Purchasing
Customers can buy a policy through different channels or modes. Insurance experts suggest buyers to own a plan from the insurance broker and clear any insurance related queries on the claim process, free look period, policy charges etc.
Some insurance products offer extra advantages to elderly people and children. There are many riders which you can add at the beginning of the plan.
Women today are more empowered socially and are working hand in hand with their husbands to provide for their needs and build a better future for their children. More than two thirds of women in India are breadwinners or co-breadwinners in the family. But when it comes to their financial planning they are happy to let the men in the family take over.
Unfortunately, the attitude towards money is still pretty much the same as it used to be decades back as far as the ladies of the house are concerned. Working women must realize that if they are sharing every other responsibility in the family, they must get to some smart financial planning as well that can help them secure their lives against uncertainties that may affect their financial status. Life insurance plans are the vehicle that can be used for savings as well as investments. If you are not convinced yet as to why to need life insurance cover that is separate from that of your husband, here is a lowdown on the things life insurance can achieve for you:
Since you share the responsibilities of your families with your spouse, you must share the responsibility of protecting your family, dependent children and elderly parents. You do not want to be morbid, but getting life insurance cover for yourself gives you the mental peace of having protected the future of your family, in case something happens to you.
Helping with household expenses:
Women are usually the ones controlling the finances of the family. It is therefore likely that you need to think about expenses such as putting your children through school, putting them for other vocational classes or things like putting money aside for a wedding in the family. Planning in advance and getting the right kind of insurance plans will help you put your money aside for such kind of expenses.
Creating wealth over the long term
if you have specific goals in mind such as buying property or beginning a small business in the future you can invest in life insurance policies that will mature around the time horizon with such goals in mind. Investment oriented life insurance policies can offer you the benefits of protection, savings and even give you tax benefits.
If you are feeling secure because your spouse has invested in a retirement policy, we urge you to wake up and smell the coffee! Depending on one person's retirement savings will be difficult considering the fact that you will have to make the transition from a double income lifestyle to a single income one. Your needs may be reduced, but do bear in mind that old age comes with mounting medical expenses too that does not come cheap.
Thus as you can see, life insurance is a must for you as a woman and it is has nothing to do with feminism! It’s as plain as taking care of your individual financial needs and continuing to be independent. So instead of buying the next range of gadgets, clothes, shoes or cookware, go ahead and do some online shopping, this time for insurance plans!
When you buy a life insurance policy, the most important aspect is choosing the sum assured. Sum assured is the amount that your beneficiary will get if you die during the policy term. Therefore, choosing a sum assured is very important because through insurance you create a financial cushion for your family. According to one thumb rule, quoted by many financial planners, this sum assured should be at least 12-15 times your annual expenses or 8-10 times your annual income. If you have a debt, such as a home loan, factor in that too when calculating your cover.
While it is easy and cheapest to choose a sum assured when buying a term plan—the cover is several multiples of the premium paid—other insurance products that also double up as investment products give you fixed sum assured or a range within which you can choose.
Insurance Regulatory and Development Authority (Irda) has mandated a minimum level of insurance in these products so that they don’t end up being pure investment products. The minimum cover depends upon your policy term and age.
POLICY TERM OF 10 YEARS+
The minimum sum assured or the death benefit on a life insurance policy shall not be less than 10 times the annual premium for individuals below 45 years of age. And for individuals above 45 years of age, minimum sum assured is 7 times the annual premium. But rules mandate that death benefit given to the beneficiary at any time during the policy term should not be less than 105% of the premiums paid. This means if a policyholder was paying a premium of Rs.10,000 for a sum assured of Rs.1 lakh, and dies, say, in the 15th policy year (policy term being 20 years), the insurer will pay Rs.1.58 lakh and not Rs.1 lakh (105% of Rs.1.5 lakh paid as premiums so far).
POLICY TERM OF LESS THAN 10 YEARS
For policies with a term of less than 10 years, the minimum sum assured is five times the annual premium for all individuals. Again, the sum assured or the death benefit at any given point in time would not be less than 105% of all the premiums paid. This means if a policyholder pays a premiums ofRs.10,000 for a sum assured of Rs.50,000, and dies, say, in the sixth policy year, the insurer will pay Rs.63,000 (105% of Rs.60,000 paid as premiums so far).
Irda relaxed the limit for regular insurance policies with a shorter tenor because insurers expressed difficulty in designing policies with shorter tenors with a minimum sum assured limit of 10 times the annual premium since it meant more costs and affected returns.
If you bring home a sum assured of less than 10 times the annual premium, you will not be entitled to tax benefits. Tax deduction benefits have increased to Rs.1.5 lakh under section 80C. Under section 10(10D), maturity proceeds would be tax-free if the premium is not more than 10% of the sum assured or the sum assured is at least 10 times the premium.
Earning, saving and investing should ideally be done simultaneously. But while most of us earn on a monthly basis, investments tend to get postponed—often, to the last quarter of the financial year (FY), and that too, to save on paying taxes. Since these are usually last-minute and unplanned investments, it is likely that money is put into products that may not be suitable. For instance, buying yet another insurance policy, irrespective of adequate pre-existing coverage. For best results, it’s important to ensure that both investing and tax planning are done in advance so that only those products that are in line with an investor’s financial goals are selected.
The beginning of a financial year is an ideal time for tax planning or to revisit the existing portfolio. “It gives an investor the opportunity to correct her past financial mistakes or to begin with a new approach to managing personal finances,” said Nitin B. Vyakaranam, founder and chief executive officer, ArthaYantra, a personal finance advisory.
The two basic elements of analyzing a portfolio at such a point are to look at the existing commitments, and to see what effect changes in rules and regulations have on these. Besides that, salary increments and bonuses are usually announced in the first quarter of an FY. “This helps you plan cash flows more effectively as you have a better idea of the amount of increase in salary,” said Varun Girilal, co-founder and executive director, Mitraz Financial Services Pvt. Ltd.
Prior planning also means spreading the investment plan to cover the year, which will reduce the burden of investing to save on taxes in the last few months. “The habit of rushing at the last minute to avail benefits does not work in the long term,” said Vyakaranam.
But before planning ahead, it’s best to take a step back and see what’s already in your investment portfolio.
Before committing to further investments, ensure that your previous ones are in line with your objectives.
“Check if the asset allocation still holds true,” said Suresh Sadagopan, a Mumbai-based financial planner. For instance, evaluate the debt-equity balance. Given that equity markets had a good run in 2014, some switching between assets classes may be needed to re-balance the portfolio, so that it remains aligned to the goals.
The basic objective behind tracking a mutual fund scheme, or any other product, is to see if the reasons for which you had invested in it initially still hold. If the scheme has strayed from its path, your goals could get affected. So, a decision has to be taken on whether it stays or not.
After the evaluation of an existing portfolio comes getting rid of non-performing investments, and rebalancing the portfolio accordingly. If you find that existing investments exhaust your tax benefit limits, then saving on taxes doesn’t have to drive your investment planning. You could instead focus on, say, high-return instruments.
Minimum annual contribution is Rs.6, 000, and your money gets locked in till you turn 60. Under section 80CCD of the income-tax Act, 10% of salary invested in NPS is eligible for a tax deduction of up to Rs.1.5 lakh. This limit will go up by Rs.50, 000—taking the total to Rs.2 lakh—once the finance bill is passed. Apart from this, if your employer, too, chooses to contribute to your NPS account, then contribution equal to 10% of your salary is deductible in your hands under section 80CCD(2).
If you are a senior citizen, an additional option is to invest in Senior Citizens’ saving plans Scheme which will qualify under section 80C. Interest rate on this has been raised for FY2015-16 from 9.2% to 9.3% per annum.
There may be modifications to be considered apart from those on tax benefits. For example, if you are considering fixed deposits, look at the policy rate cuts by the Reserve Bank of India.
However, investment strategies also depend upon time horizons. For short-term investment horizon, debt funds are more suitable. For medium-term horizon, fixed maturity plans (FMP) of five-year tenor and income funds are suitable. For longer term, equity exposure is advisable.
As the above mentioned examples show, proper planning—be it to save on tax or for investing—helps you manage cash flow for the entire year, and achieve financial goals in the long term.
India’s move to allow greater foreign investment in insurance companies will help breathe life into a hitherto listless industry, and could entice global reinsurance companies like Berkshire Hathaway Inc. and Lloyd’s of London to set up units in India.
Late Thursday, India amended an insurance law to raise the cap on foreign investment into Indian insurance companies to 49% from the 26%– a step that has been discussed for nearly a decade. The amendment also allowed global reinsurance companies to set up branches in India, something that wasn’t allowed before.
Experts say these steps could help bring in $1billion to $3 billion of fresh foreign investments, needed to take the insurance industry to the next level.
“The industry, at this stage, does need long-term capital for growth and expansion,” said Tarun Chugh, managing director of PNB MetLife India Insurance Co., a joint venture between India’s Punjab National Bank and American insurer MetLife Inc.
Only a small percentage of India’s 1.2 billion-strong population has insurance cover, either for life or health, so experts agree that there is huge scope for growth. Major global insurers, including the U.K.’s Prudential Plc., Germany’s Allianz SE and France’s Axa S.A., are already present in India through joint ventures created since the industry was partially opened to foreign investment in 2000.
Still, the industry continues to be dominated by state-run Life Insurance Corporation of India, particularly outside the metropolitan cities.
“If the 70% market share of LIC has to reduce, private sector has to put in a lot of money and make a stronger presence in semi-urban and rural areas,” said S.B. Mathur, former chairman of Life Insurance Corp. Mr. Mathur said that the Indian partners of insurance companies don’t have the money needed to fund this growth, so foreign investors will have to fill the gap.
India’s life insurance industry, which had grown rapidly until 2008-2009, has stagnated in the past few years following a series of regulatory changes, and a slowdown in the economy and rising inflation, which kept individuals away from buying new insurance products. But analysts hope that an expected turn in the economy, and a more stable regulatory regime, will help send the industry back to double-digit growth in the next few years.
Analysts expect companies like Allianz and Standard Life Plc. of the U.K., among others, to increase their stakes in the local insurance units.
David Nish, chief executive officer of Standard Life, said last month on an earnings call that the firm would consider raising its stake in its Indian insurance joint venture with HDFC Ltd. “It is probably unlikely we would go as far as 49 (%), but it would be in between,” 26% and 49% stake, said Mr. Nish.
An Allianz spokesman said Friday that the firm was happy that India had finally raised the foreign investment cap, but said that it would discuss the new law with its Indian joint venture partner, Bajaj, to decide a further course of action.
The ability to absorb more foreign capital, including by portfolio investors, will also likely spur some insurance companies to list on the local stock exchanges via initial public offerings.
“In the next 18 months, you’ll see three to five insurance IPOs,” said Srinivasan Subramanian, managing director of investment banking at Mumbai-based Axis Capital.
Meanwhile, analysts say the move to allow foreign insurers to set up branches in India will help grow India’s reinsurance industry, which is currently dominated by the state-run General Insurance Corporation of India.
Up till now, global reinsurers were limited in their capability to reinsure Indian assets, but now many of them will look to set up Indian units, said Shashwat Sharma, partner, management consulting at KPMG in India. He expects firms like Berkshire Hathaway, Swiss Re, Munich Re AG and Lloyd’s of London to consider setting up branches in India.
(Any opinions expressed here are those of the author and not necessarily those of Thomson Reuters)
It is tax-saving season, and you may be one of the many people who turn to life insurance plans to meet the 80C investment limit. That’s fine, as long as you don’t complain tomorrow that you bought the wrong policy and spend the next 19 years regretting it.
So here are some simple tips to help you make the right choices while buying a life insurance.
1) Don’t Understand? Don’t Buy
If you don’t understand how the plan works and you are just shown a rosy high-return scenario at the end of the policy term, simply say: “Thanks, but no thanks”. While this logic applies to most financial products, it is particularly important for life insurance, where exit fees can be very high in traditional plans. There are plans which are quite complicated with multiple triggers and factors influencing the returns. If you understand them, well and good. If not, then stay away.
2) Don’t be pushed into it
The deadlines for submission of investment proofs may be fast approaching, but don’t rush into buying a plan. It is common for people, including financially savvy professionals, to just sign on the dotted line as they don’t have the time to spend on understanding the policy. If the intermediary senses a signed blank form coming his way, chances are you will be stuck with a bad policy. Spend some time going through the illustration (which shows the possible returns scenario) and understand what you will be getting at the end of the term. “What will be my returns at the end of the policy term?” is a question many customers ask after they have purchased a plan. You are supposed to buy a plan after knowing the potential returns.
3) Don’t believe promises of very high returns
The only type of plans having the potential of returns greater than 10 percent are ULIPs. With traditional insurance plans, keep expectations in the 4 percent to 6 percent range. Even with ULIPs, the returns will be good only if the market performs well and you make some right moves with your fund allocations. The flip side to ULIPs is that you could also end up with very low returns.
4) Be wary of offers with side benefits
Some of the baits used to lure potential customers are:
- Investments go into property, so expect very good returns
- You will be eligible for personal loans at very low rates
- Cash back after a period
Beware of such offers, none of which will be honored by the life insurance company as they are not part of the contract.
5) Plan long-term
Insurance plans are not short-term instruments. You need to have at least a 10-year horizon, so ensure that you will be able to pay the same premium ever year. Don’t stretch yourself just to meet the 80C investment limit. Surrendering a policy midway can burn a huge hole in your investment plans.
6) Utilize the free-look period option
There is a mandatory 15-day period, during which you can return a policy, and the money paid by you – minus medical costs and some administration costs – will be refunded. Some insurers extend this period to 30 days.
An assurance from the insurance agent that there are policies offering twice as much return, such as whole-life plans, is quite inviting. The sum assured, along with bonus and other benefits, is paid as “survival benefit” at the end of the policy term. In addition, there will be another sum assured for the entire life or up to 100 years. This would look appealing if one juxtaposes it against a term plan, which is cheaper but doesn’t give any survival benefits.
Recently, IDBI Federal and HDFC Life Insurance launched whole life policies. HDFC Life's Sampoorn Samridhi Plus is a traditional 'with profit' plan that has options. The normal endowment option offers lump sum payment at the end of the policy term. In endowment with whole-life option, there is a lumpsum payment at the end of the policy term. After that, the life cover continues. The second payout will happen in the event of survival of the policyholder till 100 years or at the time of the death of the policyholder.
Both plans target customers who want to use insurance policies as a way of doing estate planning or legacy planning. The idea is that customers buy the plan at 30 years of age, when premiums are lower, enjoy life cover for their entire lives and leave some money for their families when they pass away, which is not possible in a pure-term plan.
“We believe high net worth individuals would use this plan for legacy planning,” says Sanjay Tripathy, senior executive vice-president (marketing, product, digital and e-commerce) at HDFC Life. One can nominate family members and ensure the proceeds from the policy go to the family members.
“Compared to endowment plans, the returns would be better in case of a whole-life plan since the principle of compounding will work and the money will stay invested for a much longer time,” says Aneesh Khanna, head (e-business, marketing and product management) at IDBI Federal Life Insurance.
“What works in their favour also is that term plans aren’t available for the entire life and buying it at the age of 50-55 is quite expensive. This option is good for those who don't want to burden their families after they pass away,” says Tripathy.
But then, one has to consider the costs. If one considers the HDFC Life plan, the premiums are higher in case of the whole life option. That is, in the case of a 30-year policy, for a Rs 10 lakh sum assured, with premium paying term of 25 years, the annual premium in the endowment option is Rs 47,493. In case of endowment with whole life cover option, the premium is Rs 53,720.
The difference isn’t huge, if one considers it is a case of double payment of the sum assured. But if you look at a 30-year term life policy, for a 30-year old male, with a Rs 10 lakh sum assured, the annual premium ranges from as low as Rs 1,989 in case of online plans to Rs 12,742 for offline ones. However, the two are not strictly comparable.
In case of term plans, if you outlive the policy, you will not get any benefit. In case of the endowment with whole life cover, you get benefits at maturity and if you outlive the policy, you get the sum assured.
Atrey Bhardwaj, head of insurance at Probus Insurance Brokers says: “Whole-life solutions are very expensive in terms of premiums paid against a term insurance plans. There is no additional benefit offered by whole life insurance plans that is not available in a term insurance plans as far as sum assured in case of death is concerned. On the other hand, if we analyze the return that is being offered in such plans, it’s not more than five per cent or six per cent at the most. This can easily be achieved by investing in some other financial instrument that may easily fetch a return of 10 to 15 per cent over a horizon of 10 years or more.”