Insurance is one of the greatest inventions in the field of personal financial products. But it becomes fatal to financial life and costly once you end purchasing a wrong insurance solution. I have selected most common questions that keep coming on TFL. You can also ask your queries in comment section.
- Are all traditional polices useless?
- What are expenses in ULIPs after 3rd Year?
- Should I go for Term Plan or Endowment/ULIP policy?
- Can I get Term Plan of 1 Crore?
- Should I buy LIC’s Magic Plan?
- Suggest some term & medical insurance for NRIs.
- Do some ULIPs charge 100% allocation charges in 1st year?
- Should I go for pension plans from Life insurance Companies?
- Should I buy Medical Insurance or build my own Medical Corpus?
Useless Endowment & Money Back Policies
Do you believe that all endowment / money back policies are not useful? Also I have one Money back endowment policy with 45000 Annual Premium and already paid for three yrs…so again the same question whether to continue or not. I have one money plus from LIC with 5000 Annual Premium and have already paid for three yrs.. So shall I continue? or withdraw?
You have asked something like all are politicians bad – now should I say no or yes. There may be few good politicians but as a class they are not – similarly my answer is endowment/money back policies are not useful. Few of them can be good – few polices that were launched by LIC in 2003-4 or before that period have some good features & higher guaranteed bonuses. But even in those policies return will not be higher than 6.5% or 7% taxfree – so if people feel that it’s sufficient for them they can continue otherwise they should plan to withdraw. My preima facia suggestion for you is discontinuing both policies.
Expenses in ULIP Policies
I and my wife taken the one ULIP policy from Max New York Life name of policy is Life Maker Premium unit linked investment plan, both 20000/- per annum. 3 yrs has been completed in October-2010……what we should do whether it should be continued both the policies……. because all major charges have been removed now. We have taken these policy only to pay the home loan after completion of 7 yrs of policies….as agent told us after 7 yrs we will get around 2.50 lac each..
It’s a good thing that you are aware about charges – but there is a misconception that charges gets over after 3 years. Check the table & compare 4th year charges with mutual funds.
|Charges||1st year||2nd year||3rd year||4th Year Onwards||Mutual Funds|
So my suggestion is if you have paid the premium for more than 3 years – whether you should withdraw or hold that investment is based on Alternative Opportunity you have at that point in time. If you find that you will be better off investing in Mutual Fund directly instead of remaining Invested in ULIP, then it’s better to withdraw the same and make Mutual fund investment. Now this statement applies to all your investment. Check surrender charges before you make this decision. (Read: How to exit mis-sold insurance policy)
Term Plan Vs Jeevan Anand
Last week I was reading TFL where Stress was given to Term Insurance rather than Endowment Policy/ULIP (Expensive Product)….Why so….Sir, I have taken Jeevan Anand Policy from LIC thru agent which will cover the life’s risk even after maturity of policy….till 100yrs… so I will get money on maturity and on death after that? Isn’t my family protected? Please guide…..
I think answer is there in your question only. These are very expensive products & should be avoided if your purpose is insurance. You have purchase Jeevan Anand – I am assuming that you are 35 & premium paying term is 25 Years. In this case your premium for 2 lakh sum assured will be close to Rs 9000. Now go & ask your agent that how much sum assured you will get in this premium if you buy term plan. You will be shocked that it will be more than Rs 25 lakh in case of LIC & if you go for some private insurance it can be as high as 30-40 Lakh. Now coming to your second question where you are saying that Jeevan Anand will cover you till 100 years –here the problem is Indians don’t realize that why Insurance is bought. Insurance is bought because if you die before fulfilling your financial goals it can be taken care through insurance & once you retire means that you have already build sufficient corpus for your financial goals.
1 Crore Term Plan
Can you please let me know about much talked about term plan insurance policies that offer Rs 1 crore. Is it really possible or have some conditions attached?
You are the first one who ever told me that term plan is much talked about. Most of the people who interact with us hear TERM PLAN for the first time. In term plan even 1 crore is not a limit you can even go for higher sum assured if required. There are as such no conditions attached but your income should justify that you can take this sum assured + you should be asked to go through some medical tests.
LIC Magic Plan
I have been propositioned this MAGIC PLAN – by LIC for my wife (age 31) and me (age -35). It is 20 Jeevan ANAND policy of 1 lakh each with sequential years of maturity to get 1 policy matured from age 55 onwards; they call it all in one – magic plan to cover insurance, accident, retirement etc. I’d appreciate your time and help in dissecting this proposal.
When I say even 1 Jeevan Anand policy is bad – how 20 will become good. This is nothing but a pure mis-selling started by few new era insurance agents. They propose this plan as this will help you to achieve your financial goals but actually it helps them to achieve their goals you are lucky that you know that Jeevan Anand is given to you but most people I have interacted think that is some special policy by LIC. My suggestion is to avoid not only this policy but also the agent who is pushing this.
Insurance policy for NRIs
I got convinced of the need of a medical insurance and term insurance (though an NRI of 38 yrs) and am finding out the best for me. Appreciate to know your view on ICICI lombard vs Appolo munich fpr the medical insurance and Kotak e preffered vs Aegon Religare life insurance.
It’s good that you got convinced that there is importance of insurance in once life. As you mentioned you are an NRI my suggestion will be that you should buy it in country where you are residing. But for other readers I have found that Apollo Munich policy features are better & also serving better in comparison to ICICI Lombard. No coming to your life insurance question – yes you should buy a term plan from India. If we compare the cost of Kotak e-preferred to Aegon Religare – it’s almost same but if we talk about claim settlement Kotak wins the bout.
100% allocation charges
Last year in July 09 I purchased a LifeStage Assure policy of ICICI Prudential from one of my friend who was in this company that time. I purchased this policy without knowing anything about it. I have paid two premiums against it till today, worth rs 10,000/- each. The Sum Assured is 1,00,000/- rs and time period is 3 years. So now kindly let me know, what kind of policy it is? What shall I get after completion of 3 years? I would be thankful to you sir.
This is a Unit linked pension plan which gives some guaranteed addition & manages your portfolio allocation according to your age. Let’s talk about worst part of this product & that will be shocking for you & other readers – not a single rupee from your premium was not allocated for investment in first year. This amount will be added as guaranteed addition after 10th year. So from this you can see that you are stuck – if you withdraw it after 3 years you will approximately get 60-70% of your premiums. Even I am shocked that you are saying that agent was your friend – no real friend can sell such long term product by saying this is 3 year product. (Check illustration with 100% charges: Insurance Schemes or Insurance Scams)
Pension Plan or Tension Plan
I am 28 years old. I AM ALREADY INVESTING RS 7000/MTH IN DIFFERENT SIP FUNDS. MY AGE IS 28. I WANT TO INVEST IN SIP FOR 20 YEARS. AS I AM WORKING IN PRIVATE SECTOR I AM THINKING ABOUT SOME PENSION PLANS. HOW CAN I GET REGULAR GOOD PENSION?
Good to hear that you are investing through SIPs. Let’s understand this right now you young – this means you have to accumulate as much as you can through good products. No need to worry that what kind of products will give me pension when I will retire – In next 20 years we will see lots of new products emerging that will help us to get some regular income. Right now you should worry about accumulation of amount. Let’s take one example – you have to reach a destination that is 1000 km from your home. There are 2 ways to reach there:
1. A slow train that directly reach there but take 2 days.
2. You can take a fast train which will take you to mid-way & then there are lots of other options to reach your final destination. It will also save your 1 day.
Which one will you choose – expenses are almost equal. 1st one is your so called pension plans. Second one is right now you accumulate till retirement & then choose best option that is available at that time. Hope it clarifies your question – other than SIP you can also start some small contribution in PPF.
Medical Insurance or Medical Corpus
My purpose is to set aside 2000 Rs. per month for medical expenses(surgery,hospitals etc)that might occur in future. I am thinking of investing this amount in monthly income plan(growth option) type of mutual funds rather than recurring deposits and then making FDs. This investing will be long term i.e. till I retire. This fund might be used(in case of surgery/hospitalization etc) OR may not be used in long term. Is this a correct decision? Is MIP the best suited type of MF for this purpose.(priority1:capital protection/priority2:appreciation) What is the difference between MIP and debt oriented conservative funds? Thanks in advance for response. Note: This is apart from medical insurance. Once enough funds are available with above strategy, I will stop mediclaim.
It’s a good idea to build some medical corpus for retirement years but that should be over & above medical insurance. Any amount of corpus can’t replace benefits of medical insurance. Medical Corpus can be exhausted in a single medical emergency but insurance will give you benefit year on year. My suggestion is do some reverse calculation – what kind of corpus you need for medical emergency at the time of your retirement. Then calculate how much you should contribute every month to achieve it. To simplify the things you can just add this amount to retirement corpus needed & start accumulating. Regarding selection of fund my suggestion is go for balanced or diversified equity fund in place of MIP as it is your long term goal.
In case if you have any question related to insurance – feel free to add it in comment section.
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