Q&A: Life insurance

Last Updated: Fri, May 25, 2012 07:26 hrs
​life insurance

I am 27 and run my own travel agency. I am out of India most of the time and frequent five to six countries almost every month. What kind of cover is advisable for me? Also, if any mishap occurs, will the cover support me when I am outside India?
The main objective of life insurance is to provide financial security to your family in the case of any unfortunate event, like death or accident, that leaves you incapacitated to work. Since the nature of your job involves a lot of travelling, thereby exposing you to higher risk, it is advisable you buy a term plan. You should consider a sum assured worth 8-10 times your annual income, ensuring that your family will have enough to sustain their current lifestyle, taking into consideration the rate of inflation. Term covers are the cheapest form of insurance and a must-have for all individuals, irrespective of their profession. Such a cover will help when you are outside India and in case a mishap happens in a foreign country.

However, to cover any mishap that may happen when you are outside India, it is advisable you take travel insurance from a general insurance company every time you travel, for that specific period. Your travel insurance would also cover expenses in case of medical exigencies or hospitalisation abroad or other travel-related risks like loss of baggage or passport, in the foreign country.

I want to invest in a unit-linked insurance plan (Ulip). My needs are my daughter's higher education and my retirement (both 10 years away). But, I can buy only one plan now. Is it advisable to take it in the name of my daughter, by investing in one of the education-linked plans? Or, should I go for a retirement plan? Do the returns vary across these themes?
Based on the details provided and considering your defined goals, you should opt for an insurance plan that will fetch you a lump sum at the end of 10 years. This will provide you a corpus to take care of your daughter’s higher education and the same plan shall provide you a regular income after your retirement.

It is also important to understand that while investing in a unit-linked plan, though the upside is unlimited, there is also the potential of a downside, as Ulips are linked to the market. Hence, the returns vary according to the market conditions, just like in stocks or equity mutual funds. In the present market scenario, not many Ulips have given very good returns. However, over a very long period, like 10 years, equities are known to outperform any other investment avenue. There are also options in debt funds. But, for long-term goals like yours, it does not make sense to choose a debt fund, as it will not be able to give as good returns, though it will guarantee capital protection.

Hence, your risk-taking ability that will decide your choice. A basic thumb rule while planning for retirement is, your corpus for retirement should be relatively immunity to interest rate fluctuations because damages caused by interest rate risk can often be irreversible, especially when one’s regular income has stopped.

The write is CEO of Bajaj Allianz Life Insurance. Views expressed are his own.
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