Wednesday, December 06, 2006

Tips for buying Insurance (Part I)

Each person's requirement is different. With so many companies and so many products available, the selection of the right policy could be difficult. One needs to spend time to identify what their primary requirement is and then select a policy which meets your requirement. The following are some of the factors that one should consider prior to selecting an insurance policy.

High Sum Assured with small premium
If your requirement is buying a policy which offers maximum cover with minimum premium, the "Term Plan" best suits your needs. Please be aware that with term insurance you don't get anything back. Kotak offers one of the best term plan for non smokers. You might also want to get the quotes for term insurance from other companies like LIC, ICICI and HDFC and checkout which term plan works out to be the best.

Maximum Term
If your priority is to have insurance cover for the rest of your life without any age restrictions, then "Whole Life" ULIPS should suit you best. There are ULIPS from Metlife, LIC which offer insurance cover for the rest of ones life without any age restrictions. You might also want to check with other insurance companies if they offer Whole Life ULIPS.

Maximum Insurance Cover with Returns
If ones priority is to get maximum insurance cover with the option that you get decent returns at the end of the term, then the best plan for you is regular ULIPS. You might want to get quotes from Reliance, Bajaj Allianz, ICICI which offer sum assured of 100 times the premium.

Childrens Education
If one is looking for an insurance product for saving towards their "Childs Education/Marriage" then I would recommend Children's ULIPS. I would recommend getting quotes for HDFC Young Star and ICICI Smart Kid or a children's ULIP from any company. In my opinion, these are very well designed ULIPS which offer excellent security for your kids future. Incase anything unfortunate happens to the proposer, these plans offer immediate "Sum Assured" to the beneficiary. The company also pays the balance remaining premiums towards your kids education. On maturatiy or whenever the need arises, the kid is entitled to all the funds contributed by the proposer and also to the funds contributed by the insurance company. (If it is for your Children's future, please donot go for anything less than a Children's ULIP. You might run into insurance agents who might be selling you regular ULIPS for your kids education but this in my opinion is a bad deal!).

Guaranteed Returns
If ones priority is "some guarantee on returns" rather than maximizing returns, then one should opt for traditional endowment plan from LIC. These plans guarantee the "Sum Assured". But please be aware that traditional endowment plans are not flexible like ULIPS and might not yield as much returns. There are also some ULIPS which guarantee the premiums paid and with the added benefit of investing in equities for maximizing returns like Kotak Safe Investment Plan 2.

Investments/Maximizing Returns
If ones priority is mainly investments/"return on investment" with decent insurance cover, then one needs to opt for a good ULIP with less charges and good returns. I would recommend getting quotes from SBI, HDFC. These have been the top performers among ULIPS and have been yielding good returns (better than many MF's).

No one product will suit the needs of every person. One will need to identify what his priorities/needs are and then select a product that will meet his needs.


Anonymous said...

Nice article.Can you tell me the TOP ULIPs which performed better than MFs.

I'm bit confused,in most of your articles you are against investing in ULIPs but here you recommend ULIP.


Raj Gopal Vuppala said...

ULIPS are for those who seek insurance. If you are purely looking for "Investments" then mutual funds are a better option. If you are looking for insurance cover, then ULIPS are a decent option for consideration.

The ULIPS of SBI and HDFC have been performing very well. They have been providing better returns than many MF's.

ULIP Investment said...

I did not quite understand the part where you mentioned Guaranteed Returns on ULIP investment inspite of equity exposure. Is there any trick?.
Recently I saw one Kotak's ULIP "Kotak Previleged Assurance Plan" where they mention about P1 and P2 premiums and returns guaranteed only on P1 premiums. I did not quite get it. Can you please explain?.
Link to the plan :

Thanks and regards.

Raj Gopal Vuppala said...

There is an insurance product by Kotak called "Kotak Safe Investment Plan 2". This plan guarantees all the premiums you pay. The plan maintains an equity exposure of "40 to 80%". I did get a quote from Kotak for this plan, and the illustration clearly shows that premiums paid are guaranteed back.

I donot have much idea about "Kotak Priveleged Assurance Plan". I will need to read its brochure to check what it offers.

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Buysell said...

I am really impressed by the matter/thoughts you have presented in your blog. Such thoughts must be coming from a decent man with high esteem for the common man, hats off to you.


Unknown said...

"Wondeful post ,very insightful I should say .. It has really helped me understand a lot! :) Have been searching for tutorials on how to plan for insurance according to my budget and needs, especially health insurance .. This tool came in handy too! Enjoy :)

Priy/-\ said...

Hi Raj,

I need your help. Can you just tell me that where to know the market value of policy. I have Life insurance of Kotak Safe inverstment Plan. I want t owithdraw it after 3 years. how to know that how much I will get after 3 years , as i am paying premium of 20,000 per year.

siby kottayam said...

no doubt at all!u r doing a gr8 work.atleast ,an investor like me who is fresh in this investment world now able to understand the system in quite simple way u deal with.Raj,i have got one question,i have got two insurance is traditional lic's jeevan shree-1 and other is CANARA -HSBC ulip.former policy term is 20 years in which premium payable period is 12 years where in my ulip plan premium pyable time is 10 years.both have almost same i dont think it s ncessary to hold 2 insurance plans 2 gether.i am thinking of surrendering lic plan after its premium payable period and invest that money in some other investments while holding back the it a correct decision..i m waiting 2 hear from you/ thanks bhaiya...