Life insurance: Pricing of insurance policy, risk assessment based on disclosures

Feb 25 2014, 10:17 IST
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The pricing of a insurance policy and the assessment of risk are based on the disclosures. Reuters The pricing of a insurance policy and the assessment of risk are based on the disclosures. Reuters
SummaryAn insurance contract is based on the principle of ‘uberrima fides’ or utmost good faith.

kind of returns do endowment policies give at the end of the term. Is it better to go for a unit-linked policy for higher returns?

— Samar Singh

The choice depends on your investment objectives and risk appetite. Unit-linked insurance policies (Ulips ) offer professionally managed exposure to equity, debt or balanced fund and they focus more around generating higher investment returns.

They are normally opted for by investors willing to take calculated risks. They offer a choice of funds based on one’s investment needs and risk appetite. Investors with lower risk profile often choose traditional plans. Traditional plans are feature-based products that normally have a larger insurance component than Ulips.

They provide higher death benefits and moderate growth of investments over the policy term. In these plans, it is the insurer who, as per relevant regulations, makes the investment choices.

Traditional endowment policies will return at least the sum assured chosen. They may also declare bonuses year-on-year depending on the performance of the insurer.

* The author is executive vice-president, Kotak Mahindra Old Mutual Life Insurance

* Send your queries at fepersonalfinance@expressindia.com

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