Life Insurance: A Modern Miracle
A Life Policy is just a time-yellowed piece of paper with columns of figures and legal phrases until it is baptised with a widow’s tears. Then it is the modern miracle, and Aladdin’s Lamp. It is Food, Clothing, Shelter, Education, Peace of Mind, Comfort, Undying Love and Affection. It is the sincerest love letter ever written.
It quieten's the hungry crying of a baby at night. It eases the aching heart of the bereaved widow. It is a comforting whisper in the dark, silent hours of the night. It is new hope fresh courage and strength for the mother to pick up the broken threads of life and carry on. It is the college education for the son and daughter, the chance for a career instead of a need for a job.
It is comforting presence, a helping hand, a softly breathed word of comfort and cheer when needed most. It is the undying, unfailing love and affection. It is fruition of a father’s hopes and plans for his family’s future. Through Life Insurance he lives on. There is no death, Life Insurance is a plan that EXALTS LIFE AND DEFEATS DEATH. It is the premium that we pay for the privilege of living after death.
Term Insurance – FAQs
I don't want to put my hard-earned money into a pure term assurance plan if I don't even get back all the premiums paid on survival of the term?
Answer: The benefits of a term assurance plan cannot be understated. A pure term assurance plan is a risk mitigation tool and not an investment product. In the event of your untimely death during the policy term, your dependents get a substantial "sum assured" to enable them to continue living their existing lifestyle, repay loan liabilities and meet long-term financial goals. To achieve this, you only need to pay a premium amount that is a fraction of the "sum assured". A term assurance plan provides life cover at the least possible cost. Moreover, unlike investments, where it takes years to build a suitable corpus, the "sum-assured" on your insurance policy is payable, in the event of your untimely death, from the date of its commencement.
Is single premium recommended or regular premium?
Answer: Assuming your regular premium is ₹100 pa for a 25 years yearly premium policy, you need to pay approx ₹1300 in a single premium, i.e you land up paying 50% of the overall term premium upfront which is a costly proposition.
Can I get insurance cover of ₹5 crore?
Answer: There is no limit to the quantum of insurance that one can take. If you are below age 35 years & your yearly income is minimum ₹25 lakhs and you are in fittest of your health, you can enjoy insurance cover of ₹5 crore also. Higher income justifies proposer's demand for higher insurance cover.
Pension Policy (Deferred Annuity) - Skip It For Now
The regular premium Deferred Annuity Pension Plans (Traditional / Unit-Linked) are a hit today. But that’s not a very wise investment to do - You should infact give it a skip.
Investment & Financial Planning is incomplete without focusing on retirement planning. Every individual is suggested by his advisor to have a Pension Plan to take care of his financial independence after he retires. Before we decide whether it makes sense to have currently available Pension Plans, let us look at Pension Plans available a few years back.
Year 2001, LIC Jeevan Suraksha (Plan 122) offered guaranteed bonus resulting in compounded growth of 9% for upto 35 years and also the pension was guaranteed @10% on the accumulated corpus. Also available was 100% deduction upto ₹10,000/- p.a. u/s. 80CCC over and above the sec. 88 limit.
Obviously we can’t expect such high returns today, but you were sure about two things – a fat corpus on retirement and high assured rate of pension.
Congratulations, if you have invested in it.
How are Pension Plans designed today?
In traditional Pension Plans, you select a term & keep investing a fixed amount every year. Your policy corpus grows as per bonus declared every year by the insurance company. In the current scenario, the returns generated are paltry 5-6% p.a. So one thing is sure – not accumulating a healthy corpus even after many years, which may not even beat inflation.
But what about the Pension?
The rate will be decided in future, at the end of the term. The pension rate will be the rate of the ‘Immediate Annuity Plan’ of that life insurer, prevailing at that time. You also will have the open market option (OMO) to switch to any life insurer so that you get the best available rate of interest on your corpus. But do not forget that the PENSION IS TAXABLE.
Now a drawback: If the then existing schemes like current PO-MIS, GOI Bonds, Senior Citizen Saving Schemes are offering higher rate of interest, you cannot invest your kitty there, eg. currently LIC's Jeevan Akshay (Immediate Annuity Plan) is offering 7%, PO-MIS 7.8%, GOI Bonds 8% and Senior Citizen Scheme is offering 8.6%. Also, there might be some investment opportunity offering 10-20 years Taxfree Bonds with Regular Interest Payout. Would you like to miss that?
Then what do we do for retirement provision?
Get a good mix of Tax-Free Debt instruments, Equity Fund SIPs (best for wealth creation over long term), and build a sizeable corpus.
Once your fat corpus is ready on your retirement day...
You are free to invest it in any product that offers you the best rate of interest. You can then check out Bank FDs, Govt. Schemes like PO-MIS, GOI Bonds, Senior Citizen Schemes etc. or any tax-free option. Also check out then prevailing interest rates in ‘Immediate Annuity Plans’ of all life insurers too.
So, don’t keep yourself committed now.
To sum it up...
- Invest wisely as mentioned above to create abundant corpus for future.
- Have flexibility to grab the best possible, then prevailing interest rate in future for your pension / regular income.
So, say goodbye to current pension policies till the time they offer you either attractive assured growth, or fixed pension or atleast additional tax benefit above ₹1.5 lakh u/s. 80C.
So look before you leap at these popular pension plans.