Which life insurance policy should you buy?

When it comes to life insurance, there are so many products available in the market. Moneyback, Unit-linked Insurance Plan (ULIP), Pension Plan and so on. Which one should a common man buy? - Jitendra

Buying a life insurance policy is a smart move, Jitendra. Any person with a financial dependent should get one. That policy would take care of them if the family's breadwinner had an unfortunate demise.

Moneyback, ULIP, pension plans = Not good

Regarding the question, we'd like to highlight that Moneyback, ULIP and pension plans are hybrid products. They offer a combination of life insurance and investments.

Sounds good in theory but not in reality.

That's because these policies a) provide inadequate life cover, b) are costly to buy and c) their investment component generally gives below-par returns.

Therefore, it's better to keep insurance and investment separate.

For investments, look at equity and equity-oriented funds.

For life insurance, only consider pure term plans.

For one, they are very affordable compared to hybrid plans. A 35-year-old healthy male can get a Rs 1 crore cover at an annual premium of around Rs 15,000.

Don't get missold

Many customers buy a life insurance policy through an agent or a broker, who may push-sell hybrid plans to you because these products help them earn higher commissions.

But don't get swayed. Ensure that you want to buy a pure term plan.

The easiest way to identify a pure term plan is to check the life insurance's survival benefit. If it's a pure term plan, the policy will have 'zero' survival benefit. This means that your loved ones would get the sum assured (life cover) only if you pass away.

But don't hybrid policies give you back your premiums anyway? They do, but hybrid policies usually charge high premiums and deliver low returns.

Have questions on how to go about buying a term insurance plan? Download this free guide.