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‘Retirement products available from life insurers ensure minimum vesting benefits’

Author: Kumar Shankar Roy/Wednesday, November 14, 2018/Categories: Expert View, The Finapolis Conversation

‘Retirement products available from life insurers ensure minimum vesting benefits’

Even though awareness about life insurance has increased manifold, there are some questions that are always troubling insurance buyers. The moment of truth is always before the buyer takes the final call. Because insurance often does not have an immediate benefit, customers often dilly-dally with buying proper insurance policies, even though they realise insurance is a useful product. Without proper knowledge, such consumers can delay or even suspend their purchases. But, insurance is one financial product that we need. Not buying insurance can be financially injurious. In an interview, Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance, provides his expert opinion on a whole host of consumer-centric queries. With over 16 years experience in life insurance industry, Rusabh tells Kumar Shankar Roy about what to consider in child plans, why buying term insurance is critical, and how comparing endowment products to mutual funds may not be fair. Read on. 

People are often in two minds while buying term insurance because there is no survival benefit. Is this the right approach?

When it comes to term insurance, there are two basic types of plans available. One of them comprises zero survival benefit whilst the other returns all paid premium if the payee survives till the plan’s maturity. Keep in mind that the premium for plans offering return at maturity is relatively higher than those which do not have any survival benefit. The purpose of this is to ensure that both types of customer needs are addressed. Thus, there is no right or wrong approach as it solely depends on a person’s requirement.

What are the factors that should drive the choice of child plan purchase? What is the best way to ensure this goal is reached?

While picking a plan for children, the primary factor to consider is that the cash inflows from the policy match the age at which the child requires the money. This money may be required for varied reasons including education, marriage, setting up a business etc. A waiver of premium benefit in child plans ensures that the cash flow requirement is met even in the absence of the parent due to an untoward event. The only way to ensure that the goal is reached is to plan well and to plan well in advance.

It is said endowment products don’t give great returns compared to mutual funds. Is it right to compare them?

That’s an interesting question. However, it is an unfair comparison. Endowment plans ensure a minimum return for customers from the date of purchase with limited downside risk. Endowment plans also include a risk cover in case of any untoward event. For most endowment plans, the maturity amount is tax free. Mutual funds on the other hand, have their inherent risks and they do not provide protection against fund erosion. There is no life protection either. From a tenure perspective, endowment plans are long term in nature, while mutual funds are preferred for shorter duration investments. The objectives of both plans are different. So it is not about either / or; it is about both. 

How does one calculate retirement corpus? Does buying a retirement product from insurance give any advantages?

There are several ways to calculate the retirement corpus. The simplest would be to use calculators available online to check retirement corpus as per your individual requirement. The retirement products available from life insurers ensure minimum vesting benefits i.e. ensure that the capital is not eroded and also give a customer access to long-term fund management expertise of life insurers.

Unit Linked Insurance Plans have been given an upgrade. What type of customers should buy ULIPs? Why?

Unit Linked Insurance Plans (ULIP) launched post 2013 are very attractive investment options. Any individual who is comfortable investing in equity, is willing to proactively shift between asset classes [debt, equity, balanced funds] and has an investment horizon of over 7-8 years should opt for ULIPs. The low fund management charges of ULIPs ensure that over a longer term, they are a better investment option than mutual funds. Furthermore, most ULIPs are structured in a way that ensures that the maturity proceeds are tax free.  

How is a Point of Sale (PoS) insurance plan different from others?

PoS insurance plans are simple insurance plans which are available as ‘over the counter’ financial products. These plans are simple to understand, and their benefits are guaranteed. They do not pose any financial risk for the customer. Even the buying process of these plans has been deliberately kept simple so that it is easy for customers with limited financial understanding to comprehend.

Tell us about the company's journey and major milestones

Headquartered in Mumbai, IndiaFirst Life Insurance, with a paid-up share capital of Rs 625 crore, completes 9 successful years of operations this November. It is promoted by two of India’s largest public-sector banks — Bank of Baroda and Andhra Bank — along with UK’s leading risk, wealth and investment company Legal & General. Bank of Baroda holds a 44 percent stake in IndiaFirst, while Andhra Bank and Legal & General holds a 30 percent and 26 percent stake, respectively. IndiaFirst differentiates itself through adoption of latest technology to provide customer-oriented solutions. Today, IndiaFirst Life is present in over 1,000 cities and towns across the country through 12,000+ points of sale.

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