Which type of insurance policy should I buy for better coverage?

I have two endowment life insurance policies. Someone offers me a certain amount of it 1 lakh for an annual premium of 6,039, which I have to pay till 2031. I have already paid 7 premiums. The policy matures in 2040. The other policy gives me definite interest 2 lakh and the annual premium is 10,602, which I have to pay till 2038. I have paid six premiums for this so far. Should I continue with these policies or surrender them to policies that give better results?

— Divya Jauhri

Endowment plans provide returns between liquid and debt funds. If you are hoping to generate returns similar to the equity market or a high-yield fixed deposit, these plans are unlikely to deliver. You might consider giving up these plans because the payment obligation is for another 8 to 15 years. Since you have already paid premiums for 6 to 7 years, the surrender charges are likely to be discounted in advance. Therefore, you should get a reasonable surrender value. You could invest the corpus in a pure investment vehicle, which is likely to generate higher returns.

Most importantly, you should consider the level of your insurance cover. Currently you are paying a premium of approx 16,641 for coverage of 3 lakhs. This makes you under-banked. For a similar annual premium, you could get cover around 1 crore, if you are 40 years old. The life insurance sum declared should be sufficient to cover ten times of a person’s annual income. The purpose of term insurance is to make your dependents financially independent in your absence.

I still have my first car which I bought in 2010 and I drive it occasionally. I have been paying a vehicle insurance premium for the last few years. Do I need to keep renewing the policy even though I rarely take the car out? Will lack of insurance affect my plans to sell the car?

— Name withheld on request

There are two parts to your car insurance. One is the damage itself and the other is third party liability. The law mandates that you maintain active third party liability insurance. The damage part itself is optional. The third party liability section covers your legal liability for any damage your car causes to another person or their property.

The own damage section covers you for damage to the car including theft. Although it is not mandatory, it is recommended that you keep yourself insured for a damage section as well. Even though the car is not used, there is a chance that it will be stolen from your garage. Since you don’t seem to be making claims very often, you would already have a high no-claims bonus. In addition, the sum declared for the car would have come down over the years due to a lower IDV. Therefore, your premium is likely to be low. You could further optimize the premium by opting out of add-on coverage.

Abhishek Bondia is the chief officer and CB, at SecureNow.in

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Updated: 02 November 2023, 10:52 PM IST

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