Deepak Mittal answers queries for 'Ask the Expert' Column in The Week Magazine
20 September 2017
I am a 28-year-old working professional in a reputed firm and earn 10 Lakh per year. I want to buy a 1 crore insurance. But there are many plans available and are often confusing. Should I buy a basic term plan or one with multiple features and riders?
Each individual is different and so are his requirements. Often plans with multiple features are helpful but only when you understand your requirements well. You can start by asking yourself few questions. Are you looking at only life cover or are you also worried about financial loss in case of a major illness. If major illnesses are also a worry, you can look at a comprehensive protection plan which provides life cover as well as cover for such illnesses. The second question you need to ask yourself is that in your absence, how well will your nominee be able to manage your finances. If your nominee is fully capable of handling the finances, you can go for a plan with lumpsum benefit. Else, you can opt for monthly income option which will ensure the nominee gets a limited amount each month for a long period to take care of his/her regular expenses and he/she is not required to take big financial decisions. In case you are unclear about the above questions, a basic term plan may suffice your needs.
I have a 5 month old son and would like your advice on which insurance cover should I buy for him. I am looking at some policy where he can use that money for higher education after 18 years.
An insurance policy when targeted towards child’s future should have 2 necessary elements. Firstly, it should be able to create the necessary funds required at the time the child needs it. Secondly, it should have a provision wherein the untimely death of the parent should not deter the funding required to fulfil future goals. There are many such products available. Apart from looking at the future cash projections, do ask for the ‘waiver of premium’ feature.
I have heard that few insurance companies are loss making companies. Should one avoid buying an insurance policy from such companies? Is there a chance that they will not honour the claim under the policy?
Life insurance is a long term business and by the nature of the business, all insurance companies incur losses in the initial years. However, this is not a reflexion of their ability to honour the claims. IRDAI ensures that all life insurance companies (whether big or small, new or old) maintain necessary financial health to enable them to process fair claims. Solvency ratio is the indication of the insurer’s ability to be able to honour such claims. All life insurance companies maintain equal or higher solvency ratio than prescribed by the regulator. One should be evaluating factors like suitability of the product including premium and corresponding benefits, quality of advice, historical fund performance and servicing capabilities in order to decide which insurer to go with.
I am taking a home loan and the bank is asking me to take a life insurance policy. Is this necessary or am I being fooled into buying a policy?
It is prudent to cover your loved ones against any financial liability that may arise in case of an unfortunate death. If you have a home loan or any other loan a correspondence insurance cover matching your liability is a must. However, the bank may not be the only destination for buying such insurance cover. As long as your insurance cover (through bank or otherwise) matches your current liabilities and future income it is sufficient. One should assess the insurance cover against the outstanding liability at a regular basis and accordingly adjust the life cover.