Ensure product suitability so you stay the course with life insurance
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar said working out a policy's internal rate of return helps compare it with other investments of similar duration. On ULIPs, he suggested weighing risk appetite, comparing them with separate term cover and mutual funds, and examining all charges.
What Abhishek Kumar said
How can I judge whether a savings-linked life insurance plan is worth buying?
I suggest calculating the internal rate of return you can expect from the policy before you buy. The IRR gives you a single figure you can set against other investments that run for the same number of years. Putting the two side by side helps you make a more informed choice about whether the policy deserves a place in your plan.
Who should consider a ULIP?
A ULIP puts your money in the market, so I would first ask whether your appetite for risk lets you sit through market volatility. If ups and downs in the fund value would worry you, the product may not suit you, however attractive the combination of insurance and investment looks at the time of purchase.
Should I buy a ULIP or keep term insurance and mutual funds separate?
Before buying a ULIP, I suggest you decide whether you really want insurance and investment in one product. Compare it with the alternative of a separate term insurance policy for protection and mutual fund investments for growth. Looking at both routes side by side shows what the combined product gives you and what it costs.
Which ULIP charges should I check before buying?
I would examine the full cost structure before signing up. That means looking at the premium allocation charge, the policy administration charge, the fund management charge and the mortality charge. Each of these comes out of what you pay, so read the charge schedule carefully so that you know exactly what you are paying for.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on insurance
Citing persistency ratios shared in the Rajya Sabha, the article notes that many life insurance policies lapse within a few years, partly because of unsuitable choices. It explains how to choose between term insurance, endowment plans and ULIPs based on need, cover amount, policy term, premium affordability and costs.
Publisher source
Ensure product suitability so you stay the course with life insurance