Term plans should be your first life insurance policy: Amit Jhingran, SBI Life Insurance
Many people view life insurance as an investment for generating returns. What are your observations?
There needs to be a better understanding that life insurance serves a different purpose. Before investing elsewhere, ensure your financial goals are protected. Without that foundation, your goals may remain unachievable. Insurance isn’t just an expense; it’s crucial for securing your financial stability and your family’s future, and shouldn’t be viewed as a burdensome cost.Traditionally, people have bought insurance for tax benefits under Section 80C, rather than seeing it as a protection tool for financial security. Insurance is seen merely to fill the Rs.1.5 lakh tax exemption gap. This has changed in recent years, and heightened risk awareness is now driving the demand for insurance products. Once people understand that insurance is essential and should come before investments, term plans will gain traction and improve the product mix in the industry.
Experts say term plans are the best form of life insurance. Do you agree?
Term plans should be the first choice for anyone to start the journey of life insurance coverage. These plans provide substantial coverage at an affordable price. By focusing on protection, consumers can secure their financial future without compromising affordability. Once they are sufficiently insured with a term plan, individuals can explore investment options.
What should one consider while buying a term plan?
One should consider the household’s monthly expenses and calculate the sum required to provide that monthly income. The coverage should be at least 10 times your annual income, plus any liabilities like loans (housing or car loans). The remaining amount should be enough to provide a monthly income to maintain the family’s standard of living. Additionally, it should account for big-ticket expenses like children’s education and major life events, such as a child’s wedding.Another important point is not to settle on a round figure for insurance, such as Rs.50-60 lakh, just because it seems comfortable. You should calculate what is needed. Also consider inflation, as the value of money will reduce over time. So you’ll need to factor this into your monthly income requirement.Does SBI Life have a policy with an inflation adjustment component?
SBI Life eShield Next offers level-up protection, where the sum assured increases by 10% at specific intervals. However, as I mentioned earlier, don’t go by round figures. It’s important for individuals to carefully assess the total sum assured they actually need.
Do you think people don’t buy term plans because insurance agents push other products more?
I wouldn’t fully agree. The industry is evolving and more people are visiting insurance websites to buy protection products, indicating growing awareness. At SBI Life, we structure our commission to incentivise distributors to sell more protection products. While protection policies typically have lower annual premiums than investment-linked products, the percentage commissions are different.
For example, while agents might earn 25% of the annual premium in the first year for an endowment policy, the commission for term plans can be higher. In contrast, Ulip commissions are 5-6% per year since most of the corpus goes toward investment.
A new product, Tulip, combines term insurance and Ulip. Do you think Tulips can replace Ulips or term plans?
With higher sums assured and potential for good investment returns, Tulips are an innovative product. However, it’s important to consider the costs involved. If you can get pure protection at a lower cost, alongside an investment product with better returns, that might be a better option. Tulips are not a replacement for Ulips or term plans. They may appeal to a niche segment of customers and cater to specific needs, but aren’t a onesize-fits-all solution.
Have the changes in capital gains taxes proposed in the Budget made life insurance more appealing as an investment?
The long-term capital gains (LTCG) tax increase from 10% to 12.5% is a small change, and the Section 10 (10D) benefit for insurance had already been limited to Rs.2.5 lakh of annual premium in previous Budgets. So, I don’t see a significant movement there. One advantage of Ulips is that switching between debt and equity within a Ulip is tax-free, unlike in mutual funds, where the capital gains tax applies.
The Author Amit Jhingran MD & CEO, SBI Life Insurance
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