Reader's corner: Life insurance

Arijit Basu, MD & CEO, SBI Life, answers your questions

I own a grocery store. I have been investing in single premium policies because my insurance agent told me that non-salaried people cannot invest in longer term policies. Is that true? Can I invest in a 10- or 15-year policy as I want to save money for my children's education?  

Life insurance is needed as well as available for salaried and for non-salaried persons. Non-salaried customers should (and also can) go for long-term policies to meet their financial goals. There is no restriction like the one you mentioned.

Yes, you should ideally invest in a policy that has 10 or 15 years’ term to secure money for your child’s education.

For this purpose, you can choose child insurance plans. These plans give you the benefit of structured payouts to coincide with the child attaining the critical life stage of 18 years to 21 years, when you will actually need finances for their higher education.

What is the difference between an endowment plan and a money-back plan? And do they both offer bonuses?  

Insurance plans should be bought according to your needs and requirements. While an endowment plan is a long-term savings and protection instrument, it generally provides funds equal to the sum assured (or cover) and bonus, on the maturity of the policy.

Money-back plan is also a type of endowment plan, but the money is returned as a fixed percentage of the sum assured to the insured during the term of the policy, at some regular frequency (for example say five years) along with bonus (if any) at the end of the  term of the policy. 

I bought a term plan of Rs 75 lakh five years ago. Since then my salary has increased. Now my annual salary is Rs 15 lakh. I am thinking of buying a Unit Linked Insurance Plan (Ulip) as it will give life insurance plus investment. How much additional life cover should I go for when buying the Ulip, considering I already have a term plan?  

It is a good thing that you have already purchased a term plan early in life. Broadly, as a thumb rule, the maximum insurance coverage an individual (young lives) can have may extend to 10-15 times of their annual income plus  financial liability. You would ideally need life insurance cover of another Rs 1 crore. In a Ulip, the funds invested partly go to meeting the life cover and the rest is built as a corpus.

Here, in order to qualify for tax exemption under Sec 10 (10D) of Income Tax Act, it is recommended that the sum assured has to be minimum 10 times of the annual premium.

Does a personal accident policy pay if the policyholder dies? And does it pay only if the death is due to an accident or does it pay even for death due to natural causes?   

Yes, an accidental death & dismemberment (AD&D) policy will pay if the policyholder dies from an accident. However, it doesn’t offer any payout when someone dies of natural causes like old age or illnesses. An AD&D policy is not a substitute for a term life insurance plan; hence it is always recommended that you have both term life and AD&D policy in your investment portfolio. The AD&D policy can be bought as a standalone individual policy or as a rider on the life insurance policy.

The writer is MD & CEO, SBI Life. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in