Readers' Corner: Life Insurance

A pure term plan will come at a lower premium and will offer you death benefit

I am 30 years old with two children. I want a life insurance policy. Should I buy a whole life cover or the regular one with cover till the age of 60?

Normally, life insurance policies protect against the risk of two life situations- dying too early or living too long. At your age, you should definitely go for a personal insurance cover (term plan) offering death benefit till the age of 80. To secure the future of your kids, it is advisable to purchase two separate child plans for each child (factoring the kids’ age and requirements) which must include the waiver of premium benefit to ensure continuity of the policy and waive of all the remaining premiums should anything happens to you. Simultaneously, it is prudent to plan for your retirement and opt for a whole life plan to take care of cash flows even after you retire. In fact, every policy has unique benefits to offer at each life stage and you should have a combination of these to completely protect your and your family’s life against uncertainties. 

Should I be investing in life insurance policies that will return the premium after the policy term or a simple term plan? I’m currently 35 years old.

The choice of a policy will depend upon your need and the life risks you want to cover. A pure term plan (simple term plan) will come at a lower premium and will offer you death benefit, should something happen to you, your family will receive the sum insured, and else you will not receive anything. While, in a plan where you will receive premium after the policy term, the premium price will be higher and even if nothing happens, you will still get back all the collated premiums (excluding GST). 

My life insurance will mature in September 2017, and I turned 60 last June. If I surrender the policy and take the lump sum amount instead of taking the annuity, what will be the tax implications?

As you are talking about annuity, your policy seems to be a pension plan. In a pension fund you cannot withdraw the entire amount and you will have to take annuity. Even in case you choose to surrender your policy, you will be able to withdraw only one third of the fund value which would be tax free under section 10 (10A) of the income tax act 1961. For the remaining two third amount you will have to purchase annuity which would be taxable. Further to the annuity purchase, you will start receiving your pension amount from the corresponding month/year (as per the plan). Do note that pension is taxable depending on age, tax slab and annual income. 

I have a 10-year-old daughter. I want to start investing under her name. Is buying a life insurance policy a good idea?

Yes, you may purchase a life insurance for her. It will ensure that your daughter has enough and guaranteed funds by the end of 18/25 years of her age (depending upon the tenure of the policy) to take care of her higher education plans as well as marriage. Purchasing the policy for a 10-year-old will also come cheaper because of low mortality charges. Also ensure that you include the waiver of premium rider in the policy so that all the future premiums are waived off and the policy continues, should something happen to you within the policy period.

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