Life Insurance: V Philip

Last Updated: Mon, Feb 04, 2013 05:43 hrs

I am 33, married and earn Rs 10 lakh a year. I plan to buy term insurance. How much death cover should I buy? Also, as I smoke occasionally, is it important to inform the insurer?
While buying a term plan, look for a cover that is sufficient to replace your income pattern, which you would have earned while remaining gainfully employed. This income pattern is usually referred to as the Human Life Value (HLV). To know your HLV, you can use of one of the online calculators. HLV takes into account some basic parameters such as current income, number of working years left, year-on-year growth expected on the current income and pattern of expenditure. Several financial experts also suggest having a cover 8-12 times of your current annual income, depending on your age and number of dependants. You should also review your life cover in line with changes in your life stages, like having children.

It is important to inform your insurer of all facts about your health, however insignificant it might seem to you, as this would help insurers to correctly determine the risk on your life. Hence, you should inform the insurer about your smoking habits, whether it has been explicitly asked for or not at the proposal stage. It is worthwhile mentioning here that "smoking occasionally" will categorise you as a smoker but it is essential to disclose this information for a smooth claim settlement process.

I am planning to invest in a Ulip for my daughter (9). Can I consider a Ulip offering thematic funds?
You might be aware that Ulips are a market-linked plan and, hence, entail some risk. The returns would depend on the fund options provided in a Ulip and which fund is chosen. Hence, before considering a particular plan or fund, it is important to know your risk appetite. This can be determined by the age/stage of your life, financial goal, asset ownership, investment experience and horizon for your goal. It is also important to consider the risk-reward relationship associated with the various fund options.

The secret to wealth creation lies in maintaining self-discipline and consistency in regular savings. Thus, a regular and systematic investment to any Ulip with a long-term horizon can help one accumulate the desired amount.

I run a small business and have employed 10 people. Can I buy a group pension plan for my employees? Will a defined benefit product be better than a defined contribution one?
Yes, you can take a group superannuation plan for your employees. However, the minimum number of members required for such a group plan could vary, based on the insurer's underwriting guidelines.

The choice between a defined benefit or defined contribution will depend on benefit you will offer to your employees on retirement. As both these products have their respective pros and cons, consider the contribution from the employer side before making a decision.

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