Get an Audit for your Insurance Policies
Many of us have been paying premiums for their insurance policies for years without realising the gains it could give them. The policies bought through friends, obliging some relative who took up an agency of a life insurance company, trusting any intermediary like a banker or broker or corporate agent etc., without understanding the merits deeply likely to leave you disappointing. We all want to save money but any saving without a goal will result to a wasteful investment. It is important to understand that there are following type of Insurance Policies; - Traditional, Market Link and Term Plans.
These plans are where there is fixed term for premium payment and for the repayment. The risk cover i.e. Sum Assured (SA) is fixed according to the premium being charged based on the age of the Life Assured. The policy guarantees a death/maturity benefit with additional bonuses. The higher the tenure, higher is the maturity amount as the bonus rates are high with longer maturity.
Market Linked Plans
Unit-linked insurance plans or ULIPs as they are generally called are an integrated financial product having features of both insurances as well as investment. The investment is made both in Debt and Equity where one can make switches between the options by actively managing the portfolio for enhancement of returns. The scheme ensures 10 times risk cover of premium payment in order to bring tax free returns under section 10(10) D of the Income Tax Act, 1961.
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.
Misunderstood Features lead to misunderstandings
The sad part of buying a policy is that many of us haven’t made use of actual benefits of the each kind of plans. Traditional plans understood majorly as Money Back, Endowment or Children Plan, thus the plan neither has decent risk cover to take care of the family needs in case of eventuality nor has the returns as compared to any investment plan. Similarly, ULIP plans became darling of big institutions intermediaries to push showing past market returns but sadly the expenses involved in these schemes have never been highlighted or factored in. Term Plans though have now been understood by many but the rate of persistency defying the very purpose it being bought.
Reality Check at right time can help Save the Day
It is important to get an audit for the policies you possess as a family because paying hefty premium which is not matching your financial objectives will certainly disappoint you. The ULIP insurance plan bought for the purpose of investment should be with the low expenses, traditional plans with some guaranteed return plans is an viable option or should you want high risk cover choose right term plan. The policies bought to oblige someone would not serve any purpose for you in future as it is not well thought, deeply analysed and bought under pressure. Thus instead of being in dark by allowing automated debits from your account, it is worthwhile to understand that your hard end money could help you generate better returns or coverage for your family
Points need to be factored
In all ULIP plans, one should examine allocation charges, management charges and administration charges. The net of all the expenses goes as investment surpluses and it is not difficult to understand that the scheme where expenses all put together ranges between 4-5% p.a. (may be including mortality charges), the scheme has to generate over and above the mentioned expenses to give you decent returns. Thus, it is important to understand the minimum premium paying period and the period of withdrawal allowed so as the exit should be possible
The bonus announced annually by the Insurance Company would determine the maturity amount at the end of tenure. In the case of a traditional plan, as mentioned earlier it is important to note that the longer the period higher the bonus, thus short tenure policies actually might not match returns of bank saving rates.
In term Plan, it is important to evaluate the Premium paying period which should match the span of your earning. Secondly, the period of risk cover should be risk cover required at least till the liabilities of the family- education, marriage, and any other one could have. Thus, the premium paying period should match the earning span of life with the cover for maximum age.
And many other aspects should be factored in or considered in auditing the policies. It would be prudent to take help from professionals to make an analysis of all life insurance policies your family has to get the right understanding of the investments.