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ails from my clients imploring us to allow them to buy their unit-linked insurance plans, especially the pension plans, "before time runs out". It is ironical to think that while the Insurance Regulatory and Development Authority (Irda) is bringing about changes in rules with effect from the upcoming September 1 in order to make it more difficult for agents to hardsell insurance and also to protect policy holders, it is the same policy holders who are in a rush to buy their policies today! And the "hard-sellers" are having a field day selling insurance policies as if it is a bargain sale which will be closing shortly.

MINIMUM PREMIUM PAYING TERM

The new laws prescribe that the premium must be paid for five years minimum as against the existing three years. Irda would like to ensure that insurance is treated as a long-term product and not subject to frequent churning. There may be many of you who have purchased a unit-linked product in the past, paid premium for three years, and then been lured by your agent to buy another product of a similar type thereafter. If you had the same premium to allocate, were you given the option to continue paying premium in the existing policy?

PENSION PLANS: THE NEW RAGE

But the flavour of the season is certainly the pension plan. For, after the new rules come into force after six weeks or so, pension plans will have to be sold with either a life insurance cover or a health rider - both of which are again good for the consumer. However, the "advantage" of this being only a savings accumulation product will be lost. Furthermore, Irda is mandating that all pension plans will carry a guarantee of 4.5% p.a. returns: this will mean that the exposure to equity will be capped. If the period of accumulation is longer, this will reduce the possibility of higher returns.

LET'S REFRESH OUR BASICS

At the cost of repetition, let us reiterate how to calculate life insurance requirements. Take a term cover for the outstanding loan amounts, especially of those assets your family cannot do without - your own home, your family car. Next, calculate the quantum of money required to maintain the family lifestyle: a simple method would be 200 times the monthly expenses - less the assets that are available to be sold, not meant for other future goals - which should be the sum assured on your policy. Only after this, should you proceed to consider insurance for your future goals.

UNIT-LINKED POLICIES

Unit-linked policies will get cheaper after September 1. Possibly, the agents' commission will be reduced at that time and the "incentive" to miss-sell will be reduced tremendously. These policies are transparent and have higher costs upfront, and are a good vehicle to meet one's long-term financial goals, if these are at least 12-15 years away. It is not a recommended instrument if one was unsure of being able to pay premiums only beyond the first 3 years or 5 years. In making our financial plans at present, we do evaluate if any unit-linked insurance policies will help meet a future goal of our clients. However, as we expect that changes that are proposed are likely to be more in favour of the policyholder, we suggest that we keep our recommendations on hold till there is more clarity on the subject. However, term plans can and must be proceeded with right away.

Source: : http://epaper.timesofindia.com/