Approach life insurance and real estate with same lens

The relationship between Life insurance and real estate investments can be best described as the Thai expression “same same, but different”. In India, the ownership of property has considerable significance attached to it. While it holds a sense of power and prestige for the ultra-rich, for the aspirational class of the population, it is a more cherished dream.

Once in possession of the keys to your new home, the asset represents financial security for one’s family in case of any eventuality. This financial protection is also garnered through a life insurance policy.

The key difference here being, that while you have to wait until the last EMI is paid on a home loan or to a builder to receive the formal possession of the asset in your name, for life insurance, the ‘sum assured’ amount belongs to you from the very moment the first premium is paid and you are the owner of the asset - which is guaranteed to be paid to you or your nominee on the occurrence of the ‘insured event’-- maturity or untimely death. Second, a life insurance policy is a tax-free financial asset, whereas a real estate investment is not as liquid and the gains are taxable.

When investing in real estate, we are compelled to exercise due caution, appropriate legal advice, and run myriad checks to safeguard our interest.

In the context of life insurance too, there is a need to adopt a similar approach. Life insurance is a high involvement product by virtue of being a long-term tool of financial protection, that merits a fair amount of prudence in order to bring the best results. Here are a few things one should keep in mind and be conscious of while purchasing life insurance

Verify the identity of the seller

When it comes to property buying, it is always advisable to go for a reputed agent and developer. In the case of life insurance too, it is important to ensure that your insurer has a credible track record when it comes to mitigating risks towards policyholders. The most effective way to ascertain a company’s reliability is to determine its claims paid ratio, which is a hallmark indicating how likely the life insurer is to pay your claims in the aftermath of the policyholder’s demise.

Just as with a builder having market standing you can be assured of the title and delivery.

Select the right option

It is important to do your checks and balances while deciding on a project. Just as we ensure adequate basic amenities such as power, water, sewerage, etc., we must ensure that our life insurance policy too meets certain requirements. Determine the kind of policy that would work best taking into account your life and financial goals, the dependents you have, the time you would require cover for. If you want to fulfill your child’s life goals, a child plan would work best, for an insurance plus savings arrangement you have the option of an endowment plan and for a pure risk cover, a term plan is your best bet. Use the insurers’ website and insurance advisors’ recommendations to research on the best insurance policy options available.

Determine appropriate EMI

While in real estate the amount of EMI is decided depending on the aspirant’s overall income and ability to pay back loan, in life insurance the level of insurance premium charged to a customer depends on the life history, age and health conditions. But unlike real estate, in life insurance you are entitled to sum assured the day you pay the first premium. While in real estate, EMI also often indicates the size of the property, in life insurance, there are term plans that offer large sum assured at a low cost. In fact, term plans are the affordable and most fundamental form of financial protection to the policyholder.

Maintain stability in volatile times

Both real estate and a certain type of life insurance policies have the potential to yield a return on investment. Just like the value of a property is prone to market volatility and frequent fluctuation. Certain types of life insurance policies, such as ULIPS are also linked to market movement.

While a promising life insurer would have qualified asset managers and analysts ensuring proper fund management of your policy, it is important to regularly evaluate your policies to offer positive returns.

So, next time you decide to opt for a life insurance policy, give adequate time to research the features and benefits of the policy you have chosen and how it will help you meet your life-stage goals

(The writer is Deputy Managing Director, Max Life Insurance )

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