Is term insurance with investment a good idea?

Ans: Hi Prasanna, life insurance protects your family in case of an unfortunate demise of the policy holder. In case of a premature death, while in case of annuity plans, it protects your income if you live longer than the expected term.

Ans: Here are some factors to consider and popular term insurance options:

Factors to Consider:

Coverage Amount: Choose a coverage amount based on your financial needs and future obligations.
Policy Term: Align the policy term with your financial goals and retirement age.
Premium: Ensure the premium fits within your budget for the entire policy term.
Claim Settlement Ratio: Opt for insurers with a high claim settlement ratio for reliability.
Rider Options: Check for additional riders like accidental death benefit, critical illness, etc., to enhance coverage.

Ans: t's commendable that you're considering both medical and term insurance. Here's some advice on each:

Medical Insurance Policy:
When purchasing a medical insurance policy, consider the following:

Coverage Amount: Opt for a policy with adequate coverage that can handle major medical expenses.
Pre-existing Conditions: Check if the policy covers pre-existing conditions, and if there's a waiting period.
Network Hospitals: Ensure the policy offers a wide network of hospitals for cashless treatments.
Claim Process: Look for policies with a straightforward and hassle-free claim process.
Additional Benefits: Some policies offer benefits like OPD coverage, maternity benefits, etc. Choose based on your needs.
Term Insurance Policy:
For term insurance, focus on:

Coverage Amount: Choose a coverage amount that would adequately support your family's financial needs in case of your untimely demise.
Policy Tenure: Opt for a policy term that aligns with your financial obligations and retirement age.
Rider Options: Consider adding riders like critical illness or accidental death benefit for comprehensive coverage.
Claim Settlement Ratio: Look for insurers with a high claim settlement ratio for a smoother claim process.
Premium: Compare premiums from different insurers to get the best value for your money.
Remember, while it might be convenient to combine both in one policy, it's often more beneficial to purchase them separately to ensure tailored coverage for each need. It's advisable to consult with an insurance advisor or planner to help you choose the right policies based on your specific requirements and budget.

Ans: Evaluating the Proposed Insurance Plan
Your plan involves a Tata AIA term insurance with an investment component. The premium is Rs 95,000 per year for 10 years. The plan assures Rs 50 lakhs in case of death or any health condition. After 10 years, the higher of Rs 50 lakhs or the market value is refunded. Let’s evaluate this plan.

Understanding the Insurance Component
Term Insurance: Term insurance is essential for financial security. It provides coverage for a fixed period. In case of death during the term, the nominee gets the sum assured.

Coverage Amount: Rs 50 lakhs is a substantial coverage. It will provide financial security to your family.

Investment Component Analysis
Investment with Insurance: Combining insurance with investment may not always yield the best returns. Often, the returns are lower than pure investment options.

Market Value: The higher market value after 10 years sounds attractive. However, the returns depend on market performance and the fund's management.

Disadvantages of Combining Insurance and Investment
Lower Returns: Investment-cum-insurance plans generally offer lower returns compared to pure investments like mutual funds.

Higher Costs: These plans often have higher costs due to the insurance component. This reduces the net returns on investment.

Benefits of Separate Insurance and Investment
Term Insurance: Opt for a simple term insurance plan with high coverage and low premium. This ensures financial security at a lower cost.

Mutual Funds: Invest the remaining amount in mutual funds. These funds, managed by professionals, often provide better returns.

Example Strategy
Term Plan: Purchase a term plan with adequate coverage. This ensures financial protection for your family.

Mutual Fund Investments: Invest Rs 95,000 per year in mutual funds. Choose a mix of equity and debt funds for balanced growth and stability.

Potential Returns Comparison
Term Insurance: Provides high coverage at a low cost.

Mutual Funds: Potentially higher returns. Flexibility in choosing funds based on risk appetite.

Long-Term Financial Planning
Emergency Fund: Maintain an emergency fund covering 6-12 months of expenses. This ensures liquidity in case of unforeseen events.

Retirement Planning: Continue contributing to retirement funds like PPF. This ensures a secure future.

Final Insights
Combining insurance and investment might not be the best strategy. Consider separate term insurance for protection and mutual funds for growth. This approach ensures better returns and comprehensive coverage.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in