By Amit Sethi

Insurance policies are one of the essential risk mitigation tools that is essential for people of all age groups. However, insurance products available in the market may vary in terms of their features. So, one must choose the right type of insurance policy in sync with their needs. Unlike term insurance policies, traditional insurance products such as endowment plans and Unit-Linked Insurance Policies (ULIPs) offer the feature of investment along with mortality risk cover. However, they may not be suitable for seniors in some cases. Let’s check out why seniors should stay away from the traditional insurance policies.

To Keep Insurance Needs, Separate From Investment Needs

Insurance and investment needs are different for different people and buying them separately can allow greater financial flexibility when they are synced with the financial goals. For example, suppose you want an insurance cover of Rs 1 crore as well as according to your financial goals you plan to invest Rs 10 lakh in various investment products. So, you may choose different investment products according to your risk appetite and return expectations, and at the same time get a term plan to cover the life risk. However, if you buy a traditional insurance product like an endowment policy, it comes as a package in which insurance and investment are clubbed in a single product. So, you may miss out the flexibility of choosing appropriate investment products as per your retirement goals.

Return On Investment In Insurance Is Usually Lower Than Other Options

Premium on traditional insurance policies mainly consists of two things, mortality charges and the amount that goes into investment. Due to old age, mortality risk is high, so a major portion of the premium may go into covering the life risk and only a little amount may go into investment. So, the return on investment could be very low compared to other investment options available in the market for senior citizens.

Traditional Policy Cover Is Often Inadequate

The purpose of a life insurance policy is to provide an adequate size of life cover that can allow financial support to the beneficiaries. However, the premiums on the traditional policies are usually very high due to the involvement of the investment portion. So, senior people may miss appropriate cover sizes if they buy traditional insurance to cover their life risks.

Finally

Seniors should keep their insurance and investment needs separate from each other. For insurance, they should pick the product that provides them adequate risk cover along with a low premium. For investment, they should pick the instruments that suit their liquidity needs, and return expectations and are suitable to their retirement goals.

The author is an independent financial journalist.