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Updated: 29/09/2008 | 05:54 PM IST
Life Insurance: A quick guide
NDTV Correspondent
Monday, September 29, 2008 (New Delhi)
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A quick recap on how term insurance stacks up against other kinds of insurance cum investment products.

WHAT TO BUY?

ONLY Term Insurance

# Cheapest

#Least prone to mis-selling

# Easy to terminate

HOW MUCH IS ENOUGH?

At least 7-10 times your annual income

Income: Rs 10 lakh a year

Insurance need: Rs 70 lakh

COST ACROSS PRODUCTS

# Term Plans: Rs 23,000-30,000 pa

A Term policy is a pure insurance cover – it is like your car insurance, you pay the premium every year and if you don't get hit, you don't get anything back. It is bought usually till the time a person gets his retirement corpus in place - covers tend to terminate around age 60.

# Endowment plans: Rs 2.3 lakh-Rs 2.9 lakh pa

# Money Back plans: Rs 3.5 lakh-Rs 4.5 lakh pa

Endowment and Money Back are like very long term fixed deposits. For a very tiny insurance cover they assure a certain lump sum at the end of 8-20 years. Return? a piddly 4-5% a year.

# Ulips: Rs 1.75 lakh-Rs 2.5 lakh pa

Ulip is a new product and is much more transparent and flexible than the other available options. The offspring of a mutual fund scheme and a term plan get is a Ulip. But this mutant still has time left before it becomes the smart edged investment plus insurance product that it wants to be. There are problems of product structure, disclosure and bunching of costs.

Kids' policies are now all Ulips and pretty much suffer from the same problems as an ordinary Ulip. But because these are bought with the child’s future in mind, people tend to hold on to them longer and the investment does work out.
Term plans: Cheapest way of buying a large cover.

Term vs other products is not an apple to apple comparison. You get Rs 70 lakh only in the event of  death in a term policy. If you outlive the term you get nothing.

In the others, you will get back money even if you outlive. So, clearly these are insurance cum investment products.

We recommend: Why take a combined product with high cost structure. Instead take a term policy. Rs 23,000 is all that you pay and you've got Rs 2 lakh  left. If you put that in a diversified mutual fund, you will get much higher returns and much more flexibility to take your money out when you need it.

WHICH PRODUCT TO BUY:

Cheapest

AEGON Religare

Also in the running:

# Kotak Life

# ING Life

# Metlife

# Max New York Life

WHY KEEP ULIPs

# You have already paid upfront charges

# Exit costs are high

# It is a marathon product

# You lose money if exit < 10 years

MAXIMISING YOUR ULIPs

# Move to 100 per cent growth option

# Do not churn

# Keep paying premiums

 

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