Types of Insurance Policies
Endowment Policies.
These are the policies wherein you can choose a specific term from 5 years to say 40 years or more depending on the age. The premium for a 30-year-old male for a policy of 1 lac comes to around 5000 yearly if you choose a 20 year term. You will have to pay the premium for 20 years and on maturity you will get around 2, 50,000 as per the prevailing bonus rates. Incase of anything of unfortunate demise the nominee gets 1 lac guaranteed plus the accumulated bonus. The rate of return comes to around 6%
Money Back Policies
In this type of policy you get periodical returns say after 4 or 5 years. It is mostly the percentage of the sum assured. For example if you have taken a policy of 1lac then you’ll get a certain percentage of 1 lac say around 20% which you will get every 5 years. On maturity, you will get the maturity amount less money backs, which have already been paid.
Mr.X takes out a policy of 1, 00,000 for 20 years. He will have to pay the premium of around 6,000 yearly. He will get 20,000 (20% of 1 lac) in 5th, 10th and 15th year. On maturity he will get the balance 40,000 (100,000-60,000) plus accumulated bonus of around 1 lac. The net yield in this policy comes to around 5% because the premium rates are slightly higher in money back policies.
Term Plan
A term Plan is a pure insurance cover plan. This kind of policy is suitable to those who want only insurance cover. In this type of plan you get high insurance cover at a very low premium. On survival till maturity the insured person will not be paid anything. But in case of death during the term he will be paid the insurance amount.
Example. Mr. X Age 30 year’s takes out a policy of 5lacs for a 20 year term then his annual premium will be just around 1600 yearly. On surviving the term Mr. X won’t get anything but incase of his demise during the term the nominee will get 5 lacs.
Whole Life Policies
As the name suggests in this policy the premium has to be paid till one survives. This is also a low premium and high risk cover policy. For 1 lac sum assured the premium comes to around 3,500 which the insured person has to pay throughout his life. The sum assured goes on increasing year after year. This type of policy is also for those who require only insurance cover.Example Mr.X takes a whole life policy for 1 lac. He will receive sum assured of 1 lac+bonus on attainment of age 80 or 40 years form the date of commencement of the policy whichever is later. If Mr. X dies in during the term then his nominee will get sum assured of 1 lac+accumulated bonus.
Unit Linked Plans
These policies are linked to share market. A part of your investment goes into the share market. For example if you pay an annual premium of 20,000 then around 6,000 will be deducted for insurance charges, policy document charges etc and the rest will be invested in the share market. Those who do not require any insurance should avoid this product. There is a great debate going on regarding the charges levied by insurance companies. Many argue that a large portion of the investments say around 30-40% is deducted for various expenses and only the remaining portion is invested in the share market thus lowering the returns. It depends from person to person whether or not investments should be made in unit-linked policies.
Monday, 14 June 2010
Sunday, 13 June 2010
Tip's for buying an insurance policy
1.Don’t invest in any policy just because one of your friend or relative has invested in it. Your requirement might not be the same as your friend. What might be good for your friend might not be good for you.
2.Ascertain how much insurance cover you require. It’s a common to see a person paying a heavy premium but still remaining under insured. For example a person having a monthly salary of 50,000 and having 2 dependents a wife and child should have an insurance cover of at least 50 lacks but what happens is he takes out an endowment policy of 10 or 15 lacs paying an annual premium of around 60,000. That leaves him underinsured by 35 lacs. Instead he should buy a cheap term plan or a whole life insurance cover.
3.Try to get yourself insured at a young age. Mostly it’s a common practice to see that all other expenses are met with and insurance policy is the last thing on our mind. At young age the premium you pay is slightly less and not many medical tests are required. The insurance premium increases with age and there are various types of medical tests required as per the age. If the tests are not up to the mark then the insurance companies might charge you an extra premium and even reject your insurance proposal.
4.Don’t take out insurance policies just to save tax. There are many lucrative options available to save tax.
5.Don’t buy insurance for investment purpose. Insurance policy will hardly give you any returns and it is solely for your dependents. You family member should be able to maintain the same lifestyle in case of anything unfortunate. Go for a pure term plan that will give you high insurance cover at a very low premium. Even though your premium is not refunded and you don’t get anything if you survive the term, a term plan is the best for your insurance needs.
6.Don’t get carried away by the claims of your insurance agent. Cross check the details provided by him.
2.Ascertain how much insurance cover you require. It’s a common to see a person paying a heavy premium but still remaining under insured. For example a person having a monthly salary of 50,000 and having 2 dependents a wife and child should have an insurance cover of at least 50 lacks but what happens is he takes out an endowment policy of 10 or 15 lacs paying an annual premium of around 60,000. That leaves him underinsured by 35 lacs. Instead he should buy a cheap term plan or a whole life insurance cover.
3.Try to get yourself insured at a young age. Mostly it’s a common practice to see that all other expenses are met with and insurance policy is the last thing on our mind. At young age the premium you pay is slightly less and not many medical tests are required. The insurance premium increases with age and there are various types of medical tests required as per the age. If the tests are not up to the mark then the insurance companies might charge you an extra premium and even reject your insurance proposal.
4.Don’t take out insurance policies just to save tax. There are many lucrative options available to save tax.
5.Don’t buy insurance for investment purpose. Insurance policy will hardly give you any returns and it is solely for your dependents. You family member should be able to maintain the same lifestyle in case of anything unfortunate. Go for a pure term plan that will give you high insurance cover at a very low premium. Even though your premium is not refunded and you don’t get anything if you survive the term, a term plan is the best for your insurance needs.
6.Don’t get carried away by the claims of your insurance agent. Cross check the details provided by him.
Saturday, 12 June 2010
Investment options
Banks
Banks are considered as the safest of all options. A person who deposits some amount in the bank earns interest from it. The two main modes of investment in banks, savings accounts and fixed deposits have been effectively used by everyone. However, today the interest rate is declining and inflation rate is increasing day by day. With the banks offering only 8 percent in their fixed deposits for one year, the yields have come down substantially in recent times. On the top of it the inflation continues to play spoil sport. The inflation is creeping up, to almost 6 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.
Post Office schemes
Post offices in India offer the highest rates of interest. For those who have safety on their mind, they can put some amount in these schemes. In terms of service, post offices have yet to prove themselves. Due do the factor of safety post offices hold major chunk of peoples investment. The term is usually 15 years. Any individual can open a PPF account in any nationalized bank or its branches. The minimum amount to be deposited in this account is Rs.500 per year. The maximum amount one can deposit is 70,000 per year. There is no fixed rule to deposit the amount. One can deposit monthly, quarterly or even at one go. The entire balance can be withdrawn on maturity that is after 15 years. It can also be extended by another 5 years.
Gold
Gold has always been a traditional form of investment and is liquid. Though it has given less return as compared to mutual funds, gold falls altogether in a different category. From investment point of view gold is the most liquid as compared to PPF, LIC and company deposits. Gold bars, coins are available in various denominations such as 1gm 3gm 10gm etc for investment.
Shares
In the past only selected people used to invest in the share market but with when the Indian share market started raising since 2004 many people joined the bandwagon in order to make a quick buck. Share markets are only for those who wants to stay invested for more than 10 years. People with short-term horizon should stay away from this adventure.
Mutual Fund
Mutual funds are managed by fund managers who invest money on behalf of the investors. Money is invested in a number of companies in order to reduce the risk. Those who don't have much knowledge about the share market can take the mutual fund route to invest their money in the share market.
Life Insurance
Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against. In case of anything unfortunate, the policy amount is paid to the nominee.
Life Insurance comes to the timely aid of the family in the unfortunate event of death of the breadwinner. The yield normally is around 7-8%. There are various schemes in LIC which one can consider according the needs.
Company Fixed Deposits
Just like Banks Company fixed deposits offer interest on investment. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. Investing in company fixed deposits is not completely safe. There is always a risk of capital erosion. Secondly, Liquidity is also a major problem. Premature redemption attracts penalty.
Banks are considered as the safest of all options. A person who deposits some amount in the bank earns interest from it. The two main modes of investment in banks, savings accounts and fixed deposits have been effectively used by everyone. However, today the interest rate is declining and inflation rate is increasing day by day. With the banks offering only 8 percent in their fixed deposits for one year, the yields have come down substantially in recent times. On the top of it the inflation continues to play spoil sport. The inflation is creeping up, to almost 6 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.
Post Office schemes
Post offices in India offer the highest rates of interest. For those who have safety on their mind, they can put some amount in these schemes. In terms of service, post offices have yet to prove themselves. Due do the factor of safety post offices hold major chunk of peoples investment. The term is usually 15 years. Any individual can open a PPF account in any nationalized bank or its branches. The minimum amount to be deposited in this account is Rs.500 per year. The maximum amount one can deposit is 70,000 per year. There is no fixed rule to deposit the amount. One can deposit monthly, quarterly or even at one go. The entire balance can be withdrawn on maturity that is after 15 years. It can also be extended by another 5 years.
Gold
Gold has always been a traditional form of investment and is liquid. Though it has given less return as compared to mutual funds, gold falls altogether in a different category. From investment point of view gold is the most liquid as compared to PPF, LIC and company deposits. Gold bars, coins are available in various denominations such as 1gm 3gm 10gm etc for investment.
Shares
In the past only selected people used to invest in the share market but with when the Indian share market started raising since 2004 many people joined the bandwagon in order to make a quick buck. Share markets are only for those who wants to stay invested for more than 10 years. People with short-term horizon should stay away from this adventure.
Mutual Fund
Mutual funds are managed by fund managers who invest money on behalf of the investors. Money is invested in a number of companies in order to reduce the risk. Those who don't have much knowledge about the share market can take the mutual fund route to invest their money in the share market.
Life Insurance
Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against. In case of anything unfortunate, the policy amount is paid to the nominee.
Life Insurance comes to the timely aid of the family in the unfortunate event of death of the breadwinner. The yield normally is around 7-8%. There are various schemes in LIC which one can consider according the needs.
Company Fixed Deposits
Just like Banks Company fixed deposits offer interest on investment. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. Investing in company fixed deposits is not completely safe. There is always a risk of capital erosion. Secondly, Liquidity is also a major problem. Premature redemption attracts penalty.
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