Get a Life Insurance if you have dependents on your income.
Life insurance will cover you for an untimely death till you are debt free or financially independent.
Why buy a term insurance?
First and foremost, we need life insurance not to save money on taxes or to get a great return on investment, but to protect our family or dependents from financial distress if we die suddenly.
We all will die for sure, but god forbid, if we die an untimely death, then that might leave our dependents in financial distress. Forcing them into situations they might have never experienced.
They have to figure out the things which we might have left in midway. Without our monthly income, they must pay off loans, EMIs, invest, pay bills, and meet all other financial needs, such as supporting higher education, marriages, and retirement.
We don't want our dependent to face financial hardship. As a result, we must prepare for this possibility. In the absence of our monthly paycheck, they should not have to make financial sacrifices.
Even after our untimely demise, we want our family or dependents to be able to continue their existing living standards. In addition, the family should be financially comfortable and free of any debts.
And a life insurance policy will do the work. We will receive an assured sum as a lump sum for a small fee. For example, for a yearly premium of Rs 10,000, we can receive a cover of Rs 1 crore. In the event of our untimely death, our dependent will receive this one crore rupees.
If we outlive the term insurance coverage, we will not receive the assured sum. However, we must reexamine our conviction and understand that purchasing a term insurance is a moral duty. Even when we are not present, we are responsible for our family and dependents. If we are financially self-sufficient or at the very least debt-free, we may not even require life insurance.
Almost everyone ignores this and falls for the insurance agents' sales gimmick. They either buy endowment insurance, money-back insurance, unit-linked insurance, or any other kind of policies. Simply because a return is guaranteed at the end of the maturity period.
All of these fancy life insurance policies require a large annual premium to be paid, while guaranteeing you a predetermined amount after a certain period of time. Often, the guaranteed return is less than 5% per year, which is less than a FD.
50,000 rupees per year for five years with a guaranteed 5 lacs rupees after fifteen years may appear to be a better deal than 10,000 rupees per year for 15-20 years with no sum secured after 20 years, but when we look at the numbers, it's not.
The money collected over fifteen years is only interested at 4.15 percent per year, and the value secured is only 5 lacs, whereas with the later insurance, our dependents will receive a guaranteed sum of one crore if we die. 5 lacs assured after 15 years is not a wise deal.
Hence, You only need a simple term insurance. Don’t get into ULIP (Unit linked insurance plan) or SIIP (Systematic Investment Insurance Plan) or what-not, the insurance companies selling you with happy family photos on the brochure.
Instead of falling to greed, buy a simple term insurance plan that is cheap and fulfills the purpose of providing coverage for untimely death.
How to buy a term insurance?
Buying life insurance is easier and less complicated than buying medical insurance, but we complicate things by succumbing to greed.
Let's have a look at how we should go about while buying a term insurance.
To begin, who should get term insurance, and when should they buy it?
Anyone with financial responsibilities, who is not financially self-sufficient, should purchase life insurance.
Secondly, what kind of life insurance should be bought?
A low-cost term insurance policy that pays out the agreed-upon amount if you die unexpectedly, should be enough. Prefer to buy it online to save even more money. (It's possible that your money will be eaten away by an offline commission business. So prefer to buy online.)
Next, how much should be covered by the insurance policy?
Consider how much money your dependents would require continuing on with their lives (financially) in your absence.
However, a basic rule of thumb is that your insurance coverage should be fifteen to twenty times your annual income.
If your income is 50,000, you should get a term plan with a minimum coverage of 75 lacs.
Finally, are there any considerations, similar to those found in medical insurance?
Term plans are straightforward to comprehend and do not require any special considerations. Just be sure the insurance providers have a strong track record when it comes to settling claims.
Two more points about term insurance:
Unlike, the medical insurance, the premium of a pure term insurance does not change with time.
You can always terminate a life insurance midway. So as soon as you are debt-free or financially independent, you can discontinue your premium towards the term insurance.
In Conclusion
Insurance is not an investment; it is simply a means of mitigating the worst effects of bad times.
Get medical insurance to cover yourself so that hospital bills and time away from work do not cause financial instability.
Buy a pure term insurance only to protect your dependents in the event of your untimely death.
If you are debt-free or financially independent, or if you have no dependents on your income, you do not need life insurance.
Until next time,
Peace out!