LoanRaja Blog- Personal Finance Guide

When the stock market goes through an uncertain phase, it is not only the equity investors who have tough times but even those who have invested in insurance plans with ULIP features. Unit-linked plans, as you know, allows investors to take exposure to equity markets as the premium amount gets invested in a combination of various equity schemes or debt schemes chosen by the insurance policy holder. The popularity of ULIP was in direct proportion to the stock market performance as investors realised that their insurance policies were capable of offering a annualised returns, in excess of 20%, besides providing the comfort of risk cover.

With the stock markets changing gears completely in the current year, many have suddenly turned away from ULIPs. While market uncertainty should not be a concern for those signing up for long term insurance plans, investors can also look at other options. One of the simpler strategies is to go for a combination of insurance policies and those who don’t like endowment or ULIPs can settle for a combination of both! In fact, ICICI Prudential Life Insurance has this combo product, Invest shield.

As the name suggests, this is an insurance plan with the primary objective of protecting the premium paid by the policyholder. Hence, the policy offers the guarantee of premium, similar to endowment plans. The similarity between this product and endowment ends there. Some of the other features are a derivative of ULIP with much lesser risk. For instance, the premium paid by the policyholder gets into a balanced fund which will have an equity allocation of 60% and the balance would be in debt.

However, the investor does not enjoy the choice of funds like ULIP. The allocation of 40% in favour of debt enables the fund manager to reduce the risks of equity and arrests the negative returns in a bearish market. Even in the current market environment, the performance of balanced funds has been less painful when compared with diversified equity funds.

Life Insurance Policy with Tax Benefit & Flexibility In Payment of Premiums

One of the key features of ULIP is that it allows flexibility in payment of premium. For instance, an investor can discontinue his premium payment after five years and still enjoy the life cover for the next five years. ICICI’s Invest Shield too offers similar advantage as an investor can discontinue the premium payment after three years. However, he would not be eligible for premium guarantee in such a case but would be eligible for survival benefit (or death benefit as the case may be). The maturity amount in this case would be the fund value depending on the market conditions.

The product is ideal for those who worry about their contribution in an investment product. The premium guarantee ensures that the investor gets back the amount contributed though in reality, one can expect double digit returns as the premium is invested in a balanced fund. Over the long term, balanced funds have the capability to provide good returns and in a bull market, their returns are on par with diversified funds. However, investors should take a long term view as this will enable them to enjoy the cycles of equity markets.

Besides providing the comfort of premium guarantee, the product also offers tax benefit under Section 80C and offers higher insurance cover like ULIP. For instance, a premium of Rs 25,000 per annum can ensure a life cover of Rs 1.25 lakhs the multiple goes up when the premium amount is high. The product can be part of a young investors tax planning portfolio in the early stage their of career. LoanRaja can help you help you narrow down the right options for ULIPs and other life insurance investments — all you need to do is fill out our short life insurance application.

Life insurance provides a family with financial support should something happen to the breadwinner. Besides serving as a protective cover, life insurance acts as a good money-saving scheme, which enables one to accumulate wealth to acquire assets, get children educated and retire comfortably. Life insurance also acts as an ideal tax-saving scheme. It is a contract between the insured person and the company that is providing the insurance. If you die while the contract is in force, the insurance company pays a specified sum of money free of income tax to the person or persons you name as beneficiaries. The beneficiary can use the cash benefits in the way he or she deems fit.

Benefits

Lack of sufficient life insurance coverage when a loved one dies can have devastating consequences for a family. The loss of income following the breadwinner’s death will cause the family immediate economic hardship and make it harder for them to realize future goals like paying for children’s education. If you are married or not you may need life insurance to protect your partner or surviving family members. Unless you already have sufficient financial resources, your survivors will need life insurance cover. A life insurance policy can be the basis of protection and financial stability after one’s death. There can never be adequate compensation for the loss of a dear one. But, if the family is also left without sufficient money to meet basic needs, they will suffer more.

Savings

Besides other saving benefits a life insurance policy can be linked to a person’s pension plan. A person can make contributions to a pension that is funded by a life insurance company. A policy can provide security for your family, protect your home mortgage, take care of your estate planning needs and look at other retirement savings/income vehicles. Life insurance is the only investment option that offers specific products tailor-made for different stages of life. Broadly there are two types of life insurance: Term, and Permanent. Savings through life insurance guarantee full protection against risk of death of the saver. Also, in case of demise, life insurance assures payment of the entire amount assured with bonuses wherever applicable.

Any person who has attained majority and is eligible to enter into a valid contract can insure himself/herself. Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered. Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered by the Corporation. At the time of taking a policy, policyholder should ensure that all questions in the proposal form are correctly answered.

Sum Assured

A person taking a life insurance policy can select a policy for a sum, which is linked to his age, income and ability to pay the premium. Higher the sum assured higher is the premium. For policies with higher sum assured medical examination is mandatory. The sum assured on a life insurance policy is payable on maturity (end of policy term) or on death of the policyholder. In the case of policyholder’s death, the nominee must inform the life insurance company of the death and provide all the necessary documents such as notification of death etc. The company will then process the papers and make the payment to the nominee.