How do you view life insurance? Do you view it as insurance or as investment or both as insurance and investment product?
Which type of life insurance you have? Is it in the form of pure term plan, or whole life, endowment policies or unit-linked insurance plans (popularly known as ULIPs)?
How much is your insurance coverage? Will it be adequate for your dependents after your demise?
Life insurance, in India, is generally mis-sold. Over the years, agents have encouraged whole life or endowment policies or the latest rage, ULIPs, without understanding the necessity and requirement of the policy holder. Due to skewed incentives to agents and also insurance companies, such policies were popular and in much demand. IRDA (Insurance Regulatory and Development Authority), which is a regulatory authority for Insurance companies, has tried to close such loopholes in its recent regulatory changes. Hopefully, regulatory landscape in insurance will keep evolving to the benefit of the policy holder.
Herein we will look Life Insurance as one of the means of ensuring financial independence. In case, you have just started your employment or you have got married, it is the right time for you to look for life insurance. Listed below are few points one must consider before buying life insurance policy:
- Life insurance is an insurance contract between you and the insurance company to ensure that your dependents are able to maintain the standard of living in case of your demise. So take insurance only if you have dependents. Mr. Happy, in his 30s, and having no dependants does not requires life insurance.
- Important - Keep insurance and investment separate. Insure yourself with a pure term policy and manage your investment separately.
- ULIPS – No. ULIPs combine insurance and investment. Works the same way as if you have pure term policy + mutual fund investment.
- If you are studying, you do not need insurance. Applies for your children also. Remember the first point. Insurance only if there are dependents. Your children do not have dependents!
- Similarly if you are already retired, you do not need life insurance.
- The earlier you start the insurance cover, the less premium you pay. Reason the probability of you outliving the policy term is more. Further, your good health works to your advantage.
- Typically your insurance cover should be 12 times your annual expenses or 10 times your annual salary. Do not worry, it will not cost you much.
- In case you have an existing debt eg. home loan, the cover should be increased by the debt amount.
Compiled below is annual insurance premium for 30 year old male for policy cover of Rs. 1 Crore with a policy term of 30 years for selected insurance providers.
| LIC Amulya Jeevan Plan | Rs. 33,600 |
| Kotak Preferred Term Plan | Rs. 15,304 |
| ICICI Pru iProtech (Online) | Rs. 10,900 |
| Aegon Religare iTerm Plan (Online) | Rs. 10,400* |
* for policy term of 25 years
Above premium excludes service tax and related cess, if any.
As you can notice, it is beneficial to go for online term plans. They are sold directly by Insurance Company online, thus eliminating agent commissions and paperwork leading to reduction in premium amount.
So, why wait? Get yourself adequately covered by a pure term plan.
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