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Term Insurance Must For The Earning Member Of The Family

Monday, March 23, 2015
By Manoj Aswani

Manoj Aswani is VP at MyInsuranceClub.com

I am 40 years old and my son is 10 years old. I want to make sure that he gets the best education after HSC – whether here in India or abroad. Please tell me the best child plan that will help me achieve this dream and suggest how much money I should invest in it?
—Kamlesh Roongta, Vile Parle

Assuming that you have 8 to 10 years of time to invest your money, you can choose a mix of risky and safe strategy. Let’s assume you have Rs. 100 to invest every year, then you can allocate about Rs. 40 in slightly risky products such as ULIPs, mutual funds, etc. Another chunk say approx Rs. 50 should be invested in guaranteed returned products which will give you moderate returns. With the remaining amount, that is, Rs. 10, you should take a pure risk cover term insurance plan. This works as a back up to ensure that even if you are not around then your dreams for your family should be fulfilled.

I had applied for a term insurance plan for my wife but the insurance agent did not proceed with the application on the grounds that she is not working and is a housewife. Can a housewife not get a term insurance?
—Nagesh Nargaonkar, Dahisar

A term insurance is a pure form of insurance which is availed by the earning member of the family to protect his/her dependents. The aim is that, if the earning member of the family dies early, then his family should not go through any financial crisis. The coverage amount or sum assured opted by the policyholder is given to the dependents so that this money can serve as the alternate source of income for them. A housewife is not an earning member of the house and does not contribute to the household income. Although the loss of her life will lead to emotional loss, it will not lead to any financial loss to the family. Hence insurance companies refrain from offering term insurance to housewives.

I have a Met Smart plus ULIP which will give me Rs. 7 lakhs on maturity. I was thinking of investing an additional Rs. 50,000 in another ULIP. Is this advisable?
—Kunal Gaurav, Byculla

To achieve a balanced insurance portfolio, one must spread his money across various types of policies. Since you already have one ULIP, you should check if you have adequate cover through other types of insurance policies. One should have an adequate cover of term insurance policy for the maximum policy duration available. Then part of your money should be allocated to low and moderate risk instruments such as traditional insurance plans which have guaranteed returns. ULIPs are capable of giving high returns but then they come with a high risk element too which needs to be completely borne by the policy holder. So do conduct a proper assessment of your investment portfolio before investing.

Can you tell me if Tata AIG Mahalife Gold is a good plan? My father has already paid a premium of Rs. 15,000 for this plan to the insurance agent.
—Dev Kumar, Worli

Tata AIG MahaLife Gold is a good whole life insurance plan which can also be taken as a Child Plan. It ranks among the few good whole life insurance plans available in the market. If you are looking at a long term and safe investment this can be a good option. One striking feature of the policy is that you get annual cash dividends every year as per the performance of the company from the 6th policy anniversary. This is also one of the most popular insurance plans of Tata AIG Life Insurance and has stayed around for long because the returns are well appreciated.

(The author is Vice President at www.MyInsuranceClub.com, insurance comparison website in India. You may write to him at
[email protected]).

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