Your money: If income is low and liabilities high, go for term insurance
By Nirjhar Majumdar
In unit-linked life insurance plans (Ulips), a high proportion of the premium is invested in debt and equity markets.Those who buy such a policy mostly prefer growth funds because 60-80% of the fund is invested in stock market, promising high return. In non-linked products, however, not more than 15% is invested in equities and the rest in various debt instruments.
There has to be life insurance cover in both linked and non-linked insurance products. However, it is important to understand how much that insurance cover is.
In Ulips, an individual gets a risk cover of 10 times the annualised premium. So, if you pay Rs 50,000 annually, you get a risk cover of Rs 5 lakh. In contrast, an individual (age around 30) who pays 50,000 towards a pure protection plan, can get a risk cover of at least2 crore. Even if one buys a traditional endowment plan (with profits), he can get an insurance cover of at least Rs 15 lakh. At the end of the term of 20-25 years, the maturity value of the policy will be no less than `40 lakh at the present rate of bonuses declared by leading insurers.
Now, it should be obvious to the insured public that Ulips offer very little insurance cover as compared to the premiums that they collect. The same amount of premium can buy far more insurance cover under non-linked products. Since the primary objective of life insurance is to offer as much financial protection as possible at the minimum possible premium, it makes sense to go for non-linked products first and consider buying Ulips when adequate insurance cover has already been purchased. If an individual has the capacity of paying Rs 50,000 annually as life insurance premium, she deserves much more than a paltry Rs 5 lakh insurance
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