My insurance agent is recommending a Ulip with an annual premium of ₹100,000 and a sum assured of ₹10 lakh. He says it gives me both life cover and market-linked investment returns in one product. Is this a good deal? How does a Ulip compare to buying a term plan and investing in mutual funds separately?
– Name withheld on request
The comparison you are making is the right one. Unit-linked insurance plans (Ulips) bundle life insurance and investment into a single product. There are two principal benefits of such a plan. First, ease of administration of a single plan with dual objectives. Second, Ulips carry a tax advantage. Ulip maturity proceeds are exempt from tax provided the annual premium does not exceed ₹250,000 per annum and the sum assured is 10 times or more than the premium.
That said, there are two advantages of a stand-alone term plan plus mutual fund combo. First, stand-alone term plans are generally cheaper. The mortality charges in a Ulip are usually high. Additionally, the cost structure of a Ulip is higher than that of mutual funds. The second advantage is that the life cover runs independently of the investment corpus.
In the Ulip, the total benefit that the nominee would get in case of the insured’s death is the sum assured or corpus value, whichever is higher. In the case of a stand-alone term plan, the nominee would get the sum assured of the term plan and the corpus value of the mutual fund.
I left my corporate job eight months ago to work as an independent consultant. My employer’s group health insurance and the group term life cover have both lapsed. I have no personal policies in place. I earn approximately ₹15 lakh a year. How should I go about building my insurance from scratch as a self-employed professional?
– Name withheld on request
This is common among professionals who move from salaried employment to self-employment. The key difference from a salaried person is that you have no default coverage across health, term, and accident. You need to build each of these independently.
Start with life insurance. Buy a pure term plan with a sum assured of at least ₹1.5 crore, which is ten times your annual income. As a self-employed individual, there is no employer provident fund or gratuity as a financial fallback for your dependents. Choose a policy term that covers you up to at least 65 years of age. This would cover your active earning period.
For health insurance, buy a base individual or family floater policy between ₹10 lakh and 15 lakh. In case there is an adverse family medical history, you may consider buying a higher cover.
Finally, buy a standalone personal accident policy. A personal accident policy pays a lump sum in the event of accidental death or permanent disability. Premiums are low relative to the benefit provided. If your consulting work involves giving professional advice, consider a professional indemnity policy as well, which covers liability arising from errors and omissions in your professional work.
Abhishek Bondia is the co-founder of SecureNow