The first question that might cross your mind while purchasing an insurance product would be about the return you’re expecting. But is it prudent to always expect return while buying insurance? Along with the answer to this question, this article will also shed some light upon when one should pick a term insurance over other return-offering insurance products.
To begin with, insurance products fall into three key broad categories:
The purpose, nature and benefits of each of these categories are significantly different.
1. Insurance Products Providing Pure Risk Cover
Products that provide pure risk cover would generally include term or health insurance. For a specified premium, the policyholder can be covered for events such as death, critical illness, accidents hospitalisation, disability etc.
Normally, with such products, there is no maturity benefit associated with the policy. The policy will only make a payment to the policyholder when the specified event occurs. While this might also mean that a lot of policyholders may not receive the payment, they along with their families are provided valuable financial protection in the event of an unfortunate occurring of a claim.
For those policies, where a claim does occur the payment made is normally many multiples of the premiums that have been paid. For instance, a protection plan of Rs 2508 annually (exclusive of service tax and educational cess) could help provide a financial cushion of up to Rs 10 Lakhs in the event of death of the policyholder (example based on a male policyholder aged 25 years, with a 25 year term).
No investment product can provide the same level of benefit for a similar level of premium.
These are insurance products in their purest form i.e. they are designed and priced so that the policyholders, as a group, are effectively pooling their premiums in order to pay a benefit for a relatively infrequent, but significant event that might occur. This means that for each policyholder the cost of providing the cover is relatively modest in comparison to the benefit that would be provided if that event arises.
2. Pure Savings Insurance Products
Pure savings products are just the opposite of pure risk cover insurance products. These policies are designed to help the individual accumulate a fund or corpus that can be used at some later point. Various variants of these contracts exist; for some policies such as unit-linked policies, the selection of the type of investment, which is made, is in the hands of the policyholder, whereas for others (e.g. traditional policies), the investments are decided by the insurer.
When considering a pure savings product, the ultimate return is an important consideration, but this must be balanced against the level of risk associated with the investments. Risk is the potential variability in the return ultimately achieved on the investments — a high risk investment may have the potential to deliver a very high return, but potentially it could also deliver a negative return. However, a fund investing in short-term fixed interest securities may have a relatively low return, but much higher levels of predictability over the level of return that will be achieved.
Other important factors to consider for an investment product are:
3. Products with a Combination of Savings and Risk Coverage
The third kind of insurance products act as both risk cover and well as saving elements. The "return" to the policyholder is based on the investment returns earned on the investment’s net of the cost of providing the risk coverage. For a given underlying investment, these products will generate lower net returns than a pure investment product because some of the premiums or funds have been utilized to pay for the risk coverage. One such policy available online in India is HDFC Life's Click 2 Invest Plan.
Ultimately, each policyholder should assess their requirements, needs and the amount of income that they are willing to invest, before deciding on which type of insurance plan to purchase. If the requirements are for a high level of risk protection at a relatively low premium, then pure protection products are normally the most appropriate product. These products are relatively straightforward and the price can be compared easily across companies. Insurance companies have a full suite of products to cater to every need of a customer.
The selection of an appropriate product to buy can often be a complex task and therefore the advice, knowledge and guidance of an experienced financial consultant can often be invaluable in selecting what is the right product for you.
Mr. Tripathy joined HDFC Life in 2004 and has been responsible for Marketing Strategy, Brand Planning, Advertising, Communication & Media, Customer Insights, New Product Development, Product Life Cycle Management, Online and Digital Strategy, E-Commerce, Customer Analytics, & Corporate communication. He started his career with GCMMF Ltd. in 1992. Since then he has worked with various reputed organizations like Frito-Lay (PepsiCo), Mattel and Reliance Infocomm before moving on to his current role at HDFC Life.View Complete Profile
A critical aspect of a retirement plan is how and where to invest. The assets you choose to invest will vary depending on several factors, which include your risk tolerance and investment time horizon.
According to a study by the Insured Retirement Institute, only a few women consider becoming financial planners because they deem the job stressful and uninteresting. The time has come to stop relying on someone else for financial security. Financial planning is nothing but determining short and long-term financial goals, and creating a balance to meet these goals.
Swabhimaan Careers is one of HDFC Life’s strategic initiatives to build long-term customer relationships. The overall objective of insurance is to compensate the financial loss caused due to untimely death of a bread winner.
The Vision and the Mission continue to be relevant and set out aspirations for an organization. But the question that an organization needs to ask is how do they get there? Is it possible to define a 'decision architecture' that guides actions of each employee?
For millions of people in India, the concept of life insurance still remains a mystery. Thanks to the new media channels, more and more people are becoming aware of the significance of life insurance. For those, who wish to develop fundamental understanding of the concept of life insurance, here is a quick snapshot.
Consumer is king. With the shifting of focus on the goods and services reaching out to the consumer rather than the other way round, Mobile learning embodies just that, by taking training not just to the doorstep but also to the learner in person. Just as an individual is empowered to carry his office with him at all times, M Learning empowers him to carry his training program with him, shattering the barriers of space and time.
Reinsurance is an insurance that is purchased by an Insurance company from one or more other insurance companies to manage the risk. Reinsurance helps in transfer of risk from one insurance company to another. It is also called “insurance for insurers” or “stop-loss insurance”.Read More