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Insurance Plans

                            Insurance – Traditional & Unit-linked Plans

The concept of Insurance has undergone a vast change from being a monetary relief made available to the policy holder’s family in the unfortunate case of his death during the prime period of his life to an instrument of savings to meet when the insured stops earning  due to reasons beyond his control.

The traditional policies provide a life cover during the period of the policy and give back the sum assured at the end of the period of the policy with a modest addition in the form of Bonus. These are called Endowment assurances. There are policies which offer life cover only for a given premium based on the age of the life assured and do not involve any savings aspect and are called pure term policies. Here the investor will not get any money back at the time of maturity of the policy.

The new generation life insurance policies combine Life Insurance and Investment in Stock/Bond market getting the insured a much higher return. These are called ULIPS – Unit Linked Insurance Policies Presently as per I R D A- Insurance Regulatory Development Authority – norms the lock-in period for ULIPS is 5 years. A fixed amount is collected as premium and the insurance coverage is fixed as no .of times the Annual premium. The Minimum and Maximum Life coverage provided again depends on the Age of the life insured. The age groups are divided usually in to two categories as below 45 years and above  45 years. Since the general longevity has increased now Insurance is available up to 65 years and the maturity period available up to 75 years.

The insured has the option to decide how the investible portion of his premium has to be invested. The investible portion of the fixed amount collected as premium is after deduction of charges such as advisor’s commission, administrative expenses of the insurer, Mortality charges based on the age of the insured to provide for the Sum Assured, Policy Administration charges and Fund Management Charges. All these charges are now subject to the regulations of the I R D A and have been brought down from the levels of charges that are being levied on the traditional policies.

After the Lock in period of 5 years the insured has the choice to either continue his policy for the full term agreed up on of opt for partial or full withdrawal of the amount outstanding in his Insurance Policy’s fund account without any charges at the value prevailing on the date of  withdrawal.

The insured can switch between funds during the year depending on the number of times permitted by the Insurer. He can also redirect the insurer to invest his renewal premium to a different fund.

In case the insured fails to continue to pay the renewal premium beyond the grace period permitted which is normally  30 days for an annual premium mode the company gives a notice for 15 days and waits for another 30 days for the insured to pay the renewal premium  along with penalty/interest  payable if any. Even after 75 days the insured fails to pay the renewal premium the policy is pre- closed and the fund value subject to deduction of discontinuance charges is kept in a Discontinuance fund. The life cover available ceases and interest @ 3.5% will only be paid. Such amount of fund value kept in Discontinuance fund will be automatically refunded on the policy completing 5 years.  If the insured dies after the policy is discontinued the nominees to the policy will be paid only the fund value and interest accrued at 3.5 % that has been kept in the Discontinuance fund .However this procedure is followed only before the minimum lock in period of 5 years. In case discontinuance occurs after the policy completing 5 years, the policy is closed after the notice period and the balance available in the fund is refunded without any charges being levied.

The Maturity Benefit is the Fund value available on the date of maturity of the policy and loyalty additions or guaranteed additions available as per policy terms is payable.

The Death benefit is the Sum Assured less withdrawals made during the last 24 months or Fund value whichever is higher.

The additional benefit  available in ULIPS is one can plan to build a targeted amount  to meet the expenses of buying a car, a house, children’s higher education and their marriage   or  old age by taking up a ULIP.

Another important relief available in case of ULIPS is the mortality charges i.e., premium collected for the Sum Assured get reduced as the fund value grows.

The ULIPS at present enjoy Exemption of premium paid under sec 80 c, exemption of partial/total withdrawal and exemption of maturity proceeds under Sec 10 10(D) under the Income Tax laws.

Additional risks like Accident Death Benefit, Total and Permanent Disability Benefit, Premium Payor Waiver Benefit, Critical Illness benefit etc., are available on payment a certain sum  as additional premium subject to maximum limit of the original Sum Assured.

As to the question of how much one should take insurance cover, the following table provides an answer :

                                                 AGE GROUP                        RECOMMENDED AMT. OF INSURANCE COVERAGE

20 TO 30 YRS                                       15 TIMES ANNUAL INCOME

31 TO 40 YRS                                       14 TIMES ANNUAL INCOME

41 TO 45 YRS                                       12 TIMES ANNUAL INCOME

46 TO 50 YRS                                       10 TIMES ANNUAL INCOME

51 TO 55 YRS                                       8 TIMES ANNUAL INCOME

                                               56 & ABOVE                              6 TIMES ANNUAL INCOME