Do you really care for your loved ones?

We all care about our loved ones and with an intent to protect their future, we buy insurance plans (endowment plans to be precise).  The insurance brokers / agents sell these insurance policy to us with a lot of jargons like sum assured, terminal benefit, critical illness cover, maturity benefit, bonus, accidental cover etc etc etc.  At the age of 24-25, the total annual premium that you can really afford to pay would be Rs 10,000 to 15,000.  With such a low premium if you purchase an insurance policy (endowment plan), the sum assured on maturity is not even Rs 5 lacs.

Are you really protecting your loved ones with such a low amount?

Let’s say at the age of 24-25 you have no dependents so you don’t really have anyone’s future to be protected.  What would you say when you get married and have children.  Can I assume at the age of 30 you will have dependents?  What do you think is the amount you need for the security of your family / dependents?  Accordingly to me which concurs with an article on rediff.com, your cover should be atleast so much that the annual return on it should be equal to the annual expenses of your dependents.  Assuming the current monthly expense would be Rs 30,000 and annual would accordingly be Rs 3,60,000.  Considering inflation rates etc, the annual expense of your dependents in real terms 1o years down the line would be atleast Rs 7,20,000 ie twice of the amount required today.  Therefore, with an interest rate of say 7% per annum a cover of atleast Rs 1 crore required to secure the future of your dependents.  The total amount of annual premium for a sum assured of 1 crore is atleast Rs 5 lacs a year.  Can you afford it at the age of 30?

What if I were to tell you that cost of securing the future of your family / dependents for the next 30 years with an amount of Rs 1 crore, is approx. only Rs 30 a day, Rs 900 a month and Rs 11,000 a year.

There is a product of insurance, which is completely ignored in India.  Term Plan – a must have but least had.  What we normally take is an endowment plan – a kind of insurance which in fact is more like an investment rather than truly being an insurance.  The key difference between an endowment plan and a term plan is that in case of a term plan if you survive the term of the insurance, you get nothing.  Let’s consider the following illustration of person A and B both 24 years old:

Particulars

Person A

Person B

Insurance Product

Endowment Plan

Term Plan

Annual Premium

Rs 11,000

Sum Assured

Rs 6-8 lacs

Nil

Term Cover

Nil

1 crore

Death / Permanent Disability at the Age of 30

Yes

Amount received at the above event

Rs 6-8 lacs

1 crore

Amount to be received on maturity if the above event did not happen

Rs 6-8 lacs

Nil

Based on the above illustration, isn’t it apparent that Person A has put his family / dependents / himself at risk by just taking an endowment plan with sum assured of meagre Rs 6-8 lacs rather than a Term Plan with a cover of Rs 1 crore for 30 years.

Also, it is relevant to mention that about 10% of the people are insured in India as of 2015 data which is at a stark contrast to United States where the ratio is about 60%.  People do argue that the premium paid for a term plan is the waste of money as you don’t get anything if you survive the term.  But I would just like to ask them one thing, look at the above table, imagine yourself being Person A or Person B at the age of 30 and which one would you like to be.

Choice is yours!!!

One thought on “Do you really care for your loved ones?

  1. Anonymous

    But still people of India are not ready to have term insurance has they want returns of there money rather than life cover still in India there is very less awareness about life insurance .But very nice article wrote by you friend .

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