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Insurance is taken against an earning member of the family so that after the demise of the member,the insurance amount can cover the expense of his/her dependents

I am a senior government employee and so is my wife. We have two sons 19 and 21 years old. I want to buy a high value life cover about Rs 50 lakh for them. Only for risk covering where money back is not an option. This is primarily to protect them at younger age when annual premium is low and they are adequately covered when they start earning. Please suggest.

Shanker Uma

Insurance is taken against an earning member of the family so that after the demise of the member,the insurance amount can cover the expense of his/her dependents. Since your children are not yet earning and have no liability as such,there is no point taking insurance now. However,if you still want an insurance,I suggest you go for term insurance plan. A term insurance plan does not have money back option. In case of an eventuality,the dependents get the money. The annual premium for term insurance of Rs 50 lakh can be between Rs 4,000 and Rs 10,000. Additionally,if you really want to help your children,you should go for SIP systematic investment plan in mutual funds for long term. SIP is a very good option to build wealth over time. You can start with Rs 5,000-10,000 per month for your children. In my view,insurance is not required for your children because there is nobody dependent on them.

I am 36 and I have an LIC policy which will create retirement corpus of Rs 1.2 crore at age of 65. I am interested in SIP which can give good returns after 10-15 years. I can invest around Rs 40,000 per annum. Which funds do you suggest and why?

V Kaushik

If the premium for the Rs 1.2 crore promised by LIC is very high about Rs 1 lakh,we would suggest you to reduce the premium. Since you are young,a combination of equity and debt funds will be good for you. Equity mutual funds invest in equities,they are dependent on market returns but are better return in the longer term. Their value fluctuates widely in short term. Since your time horizon is long,equity mutual fund will be best option for you. Invest 60 per cent of your money in this case,60 per cent of Rs 40,000 per year in equity fund. Typically,equity mutual funds provide a return of 12-18 per cent CAGR over longer time. Balanced funds invest a part in equity and a part in debt. Balanced funds,provide a return of 8-15 per cent. Since they invest a part in equity,they are also prone to market fluctuation albeit less in degree than equity mutual fund. Few of the good funds are Birla sun life frontline equity,HDFC top 200,HDFC Balanced fund etc.

Expert advice by Adhil Shetty,CEO,BankBazaar.com

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