I am a sleeping partner in a family business, managed by my elder brother (55). Recently, my brother met with an accident and had to stay away from work. As a result, all business-related work came to a standstill. Our life insurance agent suggested we take a Key Man policy for him. What is the policy? How beneficial is it?
A Key Man is an important employee in the organisation whose death or exit will result in huge financial loss. While the same is true for your family business, the Key Man insurance is not provided in partnership and family businesses, where more than 70 per cent holding is within the family. All partners have insurable interest in other partners to the extent of capital required to purchase the deceased partner’s share. Only product that can be taken under the Key Man insurance is a term product. Moreover, the cover can be taken only when the Key Man is active in business, not after he has become inactive.
I approached my life insurance agent to buy a unit-linked insurance plan (Ulip). He told me about a net asset value (NAV) guarantee plan, adding I would get the highest return of the entire policy term. What are the advantages of such a plan? Is there no Ulip that simply helps me invest without the extra frills such as NAV guarantee?
NAV guarantee plans assure the fund value based on the highest declared NAV during the policy term. Let’s consider an NAV guarantee policy issued on January 1, 2010 for 10 years. Let the highest NAV during the period January 1, 2010 to December 31, 2020 be Rs 31.30 (assuming the highest NAV during the 10-year period is guaranteed) and on maturity date the NAV be Rs 25.37. If the number of units in the policy at the time of maturity is 10,000, the maturity value payable would be Rs 3,13,000 (10,000 x 31.30). This plan tries to cover the downside risk of the customer, while providing the market returns.
However, in some products, the period during which the highest NAV is taken is shorter than policy terms. There are a number of Ulips available without the NAV guarantee, which provides flexibility to the customer to select the funds based on his/her risk appetite.
I will retire in four months and plan to take a term plan of Rs 10 lakh. I have no history of any disease. My weight, cholesterol, blood and sugar levels are in control. Can this help me get a lower premium for the cover?
A term insurance plan helps in providing an alternative income to the family upon unfortunate death of the earning member. Since you are approaching retirement, we assume that your age would be around 55 years. At this age, the premium for a term product will be higher than if you had opted at a younger age. Generally, maximum age covered under these products is between 65-70 years. So, you will be get an insurance for 10-15 years. As you are approaching retirement, and assuming that you have taken care of your family liabilities, we suggest that it will be better if you purchase an annuity plan with return of corpus that provides you regular income during the retirement period.
What is a mortgage redemption plan? How does it work?
A mortgage redemption plan is designed to cover the outstanding liabilities of the life assured in case of his/her demise during the loan period. It helps the individual to make sure that his/her family is not burdened with the repayment of loan through equated monthly installments (EMIs) or forced to dispose off the asset. The insurance cover in a mortgage redemption product reduces every year commensurates with the outstanding loan amount, and eventually, becomes zero on closure of the loan. The policy aims to pay-off the outstanding loan in case of death of the life insured. There is no maturity value available under this policy. These plans provide lower premiums as the insurance cover reduces each year. There is also a choice to pay single premium or pay constant yearly premiums.
The writer is the managing director and CEO of Future Generali India Life Insurance. Send your queries to yourmoney@bsmail.in