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					Financial Education

Life Insurance

Life insurance is a contract between you and a life insurance company, which provides your
beneficiary with a pre-determined amount in the event of your death during the contract term.

The primary purpose of life insurance is therefore protection of the family Today, insurance is also
seen as a tool to plan effectively for your future years, your retirement, and also for your children's
future needs. Today, the market offers insurance plans that not just cover your life and but at the
same time grow your wealth too.

Do I need life insurance?

If you have dependants and financial responsibilities towards them, you certainly need insurance.
Having a family means dependants; this in turn means financial commitments. Financial
commitments come in the form of loans, children's education, medical expenses, etc.
Imagine what would happen if you were to lose your life suddenly or become disabled and unable to
earn. Being insured in a situation like this is a necessity. When you insure your life, in effect what
you are doing is insuring your earning capacity. This guarantees that your dependants will be able to
continue living without financial hardships even in the event of your demise.

How much does life insurance cost?

In order to buy a life insurance policy, you must pay a certain amount as premium to the life
insurance company. The amount of premium payable depends upon the type of the policy, term of
the policy contract, the sum assured and your age. You could pay these premiums monthly/half-
yearly/annually or as a single premium.

Are there any advantages of buying insurance at an early age?

Yes. The premium that you pay on your insurance policy is mainly dependent upon two things – your
age and the tenure of the policy. The younger you are the lower is your insurance premium. At a
younger age, you would be physically sound and may not be suffering from illness and this would
entitle you to a lower premium on the policy. Therefore it is advisable to buy insurance at an early
age to reduce the cost of insurance.

What is term insurance?

Term insurance, also known as pure life cover, is the cheapest and simplest form of insurance.
Under this insurance policy, against payment of regular premium, the insurer agrees to pay your
beneficiaries the sum assured in the event of your premature death. However, if you survive till the
end of the policy term, nothing is payable to you. This policy has no savings component and the
premiums you pay are purely a cost to buy you life cover. This is suitable for you if:

           You are looking for a low-cost life cover without any savings benefits attached.
           You are at that stage in life where insurance cover is vital but you cannot afford high
            premium payment due to low income.

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What is the difference between “term” and “whole life” insurance?

Term plans are the purest and cheapest form of insurance where benefits are payable only on the
death of the policy holder within the term. Whole life plans are a special type of term assurance
wherein the term of the policy is whole of the life. So it follows that benefits under the policy are
payable only on death of the policy holder.

For more details refer to FAQ‟s on

What is a ULIP?

ULIP is an abbreviation for unit-linked insurance policy. A ULIP is a life insurance policy that provides
a combination of risk cover and investment as opposed to conventional insurance plans that only
provide risk cover. The advantage of ULIPs is that they distinguish clearly between these two
benefits and the costs attached to them which allow a customer to manage the product according
to his/her unique needs.
What are different types of ULIPs?

Today ULIPs are available to meet different financial objectives of the customer at various life-
stages, be it wealth creation, child education or retirement planning. ULIPs can also be classified as
single-premium ULIPs where you pay a premium only once in the lifetime of the policy and regular
premium ULIPs where you pay premiums monthly, half-yearly or yearly.

Why should I invest in a ULIP?
ULIPs are structured such that the protection (insurance) element and the savings element can be
distinguished and hence managed according to your specific needs. ULIPs have gained high
acceptance due to the attractive features they offer. These include:

           The flexibility to choose the sum assured.
           The flexibility to choose the premium amount.
           The option to change level of premium /sum assured even after the plan has started.
           The flexibility to change the asset allocation by switching between funds.

            The charges in the plan and net amount invested are known to the customer.
            The convenience of tracking one‟s investment performance on a daily basis.
            The option of withdrawing money after a few years (comfort required in case of exigency).
      Low minimum tenure
      Partial/Systematic withdrawal allowed
      Fund Options
            1. A choice of funds (ranging from equity, debt, cash or a combination).
            2. Option to choose your fund mix based on desired asset allocation

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What type of funds do ULIPs offer?
Most unit-linked insurance plans come with an in-built range of fund options to choose from –ranging
from aggressive funds to conservative funds so that you can decide to invest your money in line with
your market outlook, your investment preferences and needs. So if you have a high-risk appetite, go
in for a more aggressive investment option and vice versa .
How is my premium amount used in a ULIP?

It is very easy to know which part of your premium is invested in funds of your choice and which
gets deducted as charges. All you need to do is to insist on seeing a sales-benefit illustration. A
sales-benefit illustration shows the utilization of the premium and charges, year by year, for the
term of the plan so that you know how much money is invested. It will also help you understand
how a policy will grow in accordance with your chosen sum assured and premium.

Can I return my policy once purchased?

All ULIPs come with a 15-day window in which the policyholder, if unhappy with the product that
he/she has purchased, can close the policy and is paid back the entire premium. Charges borne by
the company in issuing the policy are deducted. This feature is known as free-look period and is a
one-of-its-kind feature available only in ULIPs as of now.

Can I choose how I get my benefits from a ULIP policy when it matures?
Most ULIPs offer the flexibility of taking maturity benefits either as a lump sum or “settlement
option” also known as “periodical payments” which allows you to receive the maturity benefit as a
structured payout over a period of up to five years after maturity.

How do I track my NAV whenever I want?

It is very easy to track the NAV of your policy. All you need to do is log onto the website of the
insurance company. All life insurance companies publish the NAVs of different fund options on their
website on a daily basis so that policy holders may track the performance of their policy regularly.
Today most of the insurance companies are also using other technological platforms like mobiles to
help a customer track his policy anytime he wants to.

How do I know about my charges in a ULIP policy?

In ULIPs the charges are segregated and thus made known to the customer. You can know the
charges applicable on your ULIP through:
            A sales-benefit illustration: A sales-benefit illustration shows the various charges, year by
            year, for the term of the plan so that you know precisely how much money is deducted as
            charges and what is invested.
            Brochure: A brochure informs you of the various charges and their purpose applicable to
            your policy.
            Advisor: You should enquire with your advisor about all the charges applicable to your

 What are the different charges I pay? Why do I pay them?

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ULIPs offered by different insurers have varying charge structures. The important thing to note
about ULIPs is that the overall charge structure for the plan comes down substantially over a long
term. However, insurers have the right to revise fees and charges over a period of time. The
different types of fees and charges, broadly, are:
     Policy administration charges
      These charges are deducted on a monthly basis to recover the expenses incurred by the insurer
      on servicing and maintaining the life insurance policy like paperwork, work force, etc.
     Premium allocation charges
      These charges are deducted upfront from the premium paid by the customer. These charges
      account for the initial expenses incurred by the company in issuing the policy, e.g. the cost of
      underwriting, medicals and expenses related to distributor fees. The money gets invested in the
      chosen fund after these charges are deducted.
     Mortality charges
      Mortality expenses are charged by life insurance companies for providing life cover to the
      individual. The expenses vary with the age and either the sum assured or the sum-at-risk which
      is the difference between the sum assured and the fund value of the individual‟s insurance
     Fund management charges
      A portion of the ULIP premium, depending on the fund chosen, is invested in equities, bonds, G-
      secs or money market instruments. Sometimes it is a combination of these. Managing these
      investments entails a fund management charge (FMC). The FMC varies from fund to fund even
      within the same insurance company depending on the underlying assets in the fund.

What are life goals and how do they affect my financial planning?

Each of us has some goals in life for which we need to save. For a young, newly married couple, it
could be buying a house. Once they decide to start a family, the goal changes to planning for the
education or marriage of their children. As one grows older, planning for one's retirement will begin
to take precedence. Clearly, as your life stage and therefore your financial goals change, it is
imperative to invest in an instrument that offers corresponding benefits pertinent to the new life

How do ULIPs help in securing my life goals?
Unit-linked insurance plans are long-term, systematic investment options that are designed to
address key financial goals. This forces an investor into a disciplined savings pattern which ensures
that the money being set aside will go towards the fulfilment of the specific objective.

Why are ULIPs an ideal long-term investment plan?

Unit-linked insurance plans are meant to guarantee your financial goals over the long term. As a
short-term investment tool, they will not give you considerable returns on your investments because
of the cost structure of the product, which is higher in the initial years. However, the overall charge
structure for the term comes down substantially over a long period of time, thus allowing greater
allocation of your premium in the chosen funds. To get the best of your ULIP, you should remain
invested in the ULIP for the long term of at least 8-10 years. This way, your investment will truly
experience the power of compounding and thereby create greater wealth for you to fulfil your
important goals.

What should I verify before signing the proposal?

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You should check the following before purchasing the policy:
     All the charges deductible under the policy: You should insist on seeing a sales-benefit
      illustration that shows various charges, year by year, for the term of the plan so that you know
      precisely how much money is deducted as charges.
     Features and benefits: ULIPs offer you a variety of features and benefits that no other single
      financial instrument does. Most ULIPs are rich in features such as allowing one to top up, switch
      between funds, increase or decrease the protection level during the term of the policy, cover
      continuance option, surrender options and a range of riders. However, as with all products, the
      individual features of unit-linked insurance policies differ from one product to another.
     Payment on premature surrender: Most of the ULIPs allows you to encash/withdraw a part of
      the fund any time after completion of three policy years, subject to surrender charges as
      applicable to each individual plan.
     Limitations and exclusions and other disclosures: It is important for you to know what is not
      covered by the policy and other information that the insurer is bound to reveal to you.

Insurance (General)

Insurance other than „Life Insurance‟ falls under the category of General
General Insurance comprises of insurance of property against fire, burglary etc,
personal insurance such as Accident and Health Insurance, and liability
insurance which covers legal liabilities.

Who should buy general insurance?

Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so
on. Each one of us can insure our and our dependents‟ health and well being through hospitalisation
and personal accident policies. To buy a policy the person should be the one who will bear financial
losses if they occur. This is called insurable interest.

Health Insurance
A health insurance policy would help you sail through any untoward medical contingency without
landing you in a financial crunch.
For more details

Motor Insurance
Motor Insurance policy would provide a cushion against any untoward incident that
might befall you or your vehicle.
For more details

Travel Insurance
Travel insurance is a cover for the risks you might face in your trip, overseas or
domestic. Typically, it covers death, personal accident, medical expenses,
repatriation, loss/ delay of checked baggage, passport loss and third party

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For more details