Page 46 - The Insurance Times August 2022

HOW SALARY

PROTECTION

INSURANCE CAN

HELP YOU

ere is a new feature that most life insurers now income. This means that every policy year, the monthly
H offer: salary protection insurance. This is a term amount will be 106% of the previous year’s monthly income.
insurance policy that typically offers a regular
Let’s say that you opted for a monthly income of Rs. 50,000
income payout option along with a lump sum
when buying the policy. In the second year of the policy, this
payment and is also known as income protection insurance.
monthly income will increase to Rs. 53,000, and thereafter
While opting for such a term insurance policy, you can to Rs. 56,180 the next year, and so on.
choose how to divide the total sum assured amount between
Now, let’s assume the case of the policyholder’s unfortunate
the two components (regular income and lump sum) at the
demise at the beginning of the fifth policy year. The
time of buying the policy. Those who are not investment-
nominee will get the assured death benefits of Rs. 7.6 lakh
savvy or want to choose lower but guaranteed returns can and an increased monthly income of Rs. 63,124.
opt for the term policy with a regular income payout option.
(Assured death benefit = 12 multiplied by the increased
Buyers, however, must know that it is a term policy without monthly income in fifth policy year = 12 X 63,124 = Rs.
any maturity benefits. Only the nominee receives an assured 757,488) . The nominee will continue to get the increased
death benefit—a lump sum amount—in the case of the monthly income every year for the remaining term of the
policyholder’s demise. policy, subject to terms and conditions laid by the insurer.
Akshay Dhand, the Appointed Actuary at Canara HSBC Life Rakesh Goyal, director of Probus Insurance Broker, said,
Insurance, said as per the terms of the salary insurance “Policyholders should understand that this is a term plan,
policy, regular payments are made to a nominee after the and salary protection insurance safeguards their family
death of the insured for a given number of years. members in case of their unfortunate demise. Such plans
offer family members of the deceased a regular income
This is basically a term plan with regular payouts. “This may,
payout option and the lump-sum payment. This will ensure
however, not appeal to some buyers as the conversion rate
that family members get a monthly income which they can
offered by the insurer may not be very attractive, considering
use to continue with their existing lifestyle, spend money
the guarantees involved," added Dhand.
on their children’s education or marriages."
How this policy works
You need to be cautious while opting for such policies as
When you buy a salary insurance or income protection term
insurers can also sell other variants of life insurance policies
insurance policy, you have to select the monthly income you
in the name of salary insurance.
want to provide to your family member. It can be less than
Term policies that come with critical illness, disability, and
or equal to your current monthly take-home income.
even loss of employment cover benefits can also provide you
After that, you must select the policy and the premium with a regular income in case of unforeseen events. So, if
payment term. For instance, at the age of 30 (for a non- any mishap happens, the nominee can also get a regular
smoker), you can buy a policy for 15 years for a regular income for a longer period compared to buying a salary
premium payment term. insurance term policy, by investing the money wisely.
The insurer will decide on the percentage increase in the However, in such a case, the nominee must devise a
chosen monthly income by you. For instance, the insurer meticulous plan to use the claim amount carefully after
may offer you a yearly compounded increase of 6% on this consulting a financial adviser. (Source: Mint)
46 The Insurance Times, August 2022