Whole-life insurance policies -- Wholesome protection

Sanjiv Shankaran

MULTIPLE options at times lead away from the objective. Such pitfalls are especially associated with insurance policies.

Attractively packaged and cleverly marketed, it is easy to be lured into a policy far removed from one's needs.

First, why buy an insurance policy? If it is to protect your family against an unforeseen event, it may be better to take a look at whole life policies.

A whole-life policy is, foremost, designed to provide insurance. Beyond that, some versions try to provide return on investment (that is, the premium). But, returns are secondary to the insurance cover - the basic objective of the whole-life policy.

Elements of a whole-life policy: A policy-holder is required to pay premiums all his life. Therefore, one theoretically gets insurance cover without an expiry date (actually, at 100, the policy expires!). In addition to the insurance cover, most whole- life policies provide investment returns too. And the icing is the return on the portion of the premium invested by the insurance companies.

Mr Anuroop Singh, CEO and MD, Max New York Life Insurance Company, feels Indians are under-insured. That is, as a society, we do not provide a large enough monetary cushion for our families. Max New York Life and Birla Sun Life Insurance, two new private sector insurers, offer whole-life policies. There are subtle, but significant differences in the way the companies' have structured the polices.

An overview of the policies:

Max New York's whole-life plan: Max offers two kinds of whole- life plans - Participating and non-participating. First offers returns (called bonus) on a portion of the premium invested. The second offers pure insurance, that is, no bonus. In this case, the premium is lower.

Birla's whole-life plan: Birla Sun Life's Flexi Whole-Life Plan offers a bonus, but unlike Max's offering, the policy-holder is given three investment options.

Birla's investment options are categorised according to the degree of risk in investment. Policy-holders with a high risk appetite are allowed to choose an investment option with a higher level of equity.

Unlike Birla's, Max's policy does not provide policy-holders with choice. Moreover, in line with the company policy, Max has decided not to invest in equity. Its investments, therefore, are confined to debt instruments.

Riders: Riders are additional benefits attached to the main policy that can be purchased for a higher premium. Generally, most companies offer riders that provide additional benefits in the event of an accident or in the case of a specified illness. Most companies offer other riders designed to service specific requirements. Riders are critical additions to a policy and require careful study. Often, the fineprint makes all the difference.

Suitability: For those who think they are under-insured, a whole-life policy is a starting point. As with any insurance policy, a whole-life policy is best taken when young. This is because the premium - when the policy commences - is linked to the holder's age.

Recommendation: A whole life policy, by design, is attractive. Certainly, a policy is worth a careful look if one is looking for a package with an overwhelming insurance dimension to it. If that is one's requirement, the aforementioned policies are worth considering.