To explain the way to buy life insurance, let us first explain the way you buy all the insurance other than LIFE INSURANCE. One of the most common insurance that we buy is vehicle insurance. Now what is the purpose of buying a Vehicle insurance.
We buy insurance so that in case anything goes wrong with the vehicle, the loss will be compensated by the Insurance company
The premium that we pay is treated as an Expenses and not investment. We don’t get anything in return if nothing goes wrong with the vehicle. The cost of insurance is anywhere between 3-5% of the present cost of vehicle . For example, if the IDV ( INSURED VALUE is Rs. 1 Lac, the insurance is anywhere between Rs. 3000 to 5000 for a year).
The premium rate are higher for the old vehicle then the new one.
Now such concept is applicable with most of the Insurance Policy like Mediclaim, Accidental, Fire Policy, Householder’ etc that we buy BUT NOT FOR LIFE INSURANCE.
What happens when you think for life Insurance. We believe that this is mostly misunderstood by most of the Indians. To give you an idea, there are less than 5 % people in India who have any sort of life Insurance Policy. (Read: Thank god you were not there!!)To add to the misery, on an average, the people who are insured have a cover of less than Rs. 90000/-. Now in case, the insured dies, the family get Rs. 90000/-. is something going wrong?
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LIFE INSURANCE is the most critical part of our financial planning.
It is to be bought keeping in mind that if you are not around, who will fulfill all your dreams; the expenses of your family will carry on but who will support them. But unfortunately, most of us think that Life Insurance is for Future. When the policy is matured, the insured get some amount which is called maturity benefit. (Read: What is Insurance – Investment or Expense)
We do not give importance to what is the amount of cover we have. The agent tries to impress you on what will be the returns rather than what will be the coverage.
Life insurance is for present
In actual sense, Life Insurance is for present.. it covers the present risk of one living too short and that could make family suffer drastically So insurance gives the family of the bread earner the financial support if the bread earned is no more.
Bottom line is Investment is for future and not life insurance. Never mix these two and buy a single product.
So what should one do..
TERM INSURANCE
Term policy is insurance at its purest and simplest form. You pay premiums because there is a guarantee that if something happens to you, your family will be paid out the pre-decided amount, hence you have the peace of mind that even if you are not there, those loved ones you leave behind will not have to bear a financial loss.Term Insurance is protection against risk of life.
There is no element of investment involved in Term Insurance. If any thing goes wrong the insured family gets the sum assured and if nothing goes wrong, the amount is treated as an expense. Since there is no value of your financial investment or a savings element involved, the premium accounts only for the risk cover costs (mortality costs) and hence is very low compared to other insurance products. No other insurance policy will offer you as much value for money as this. To cover your vehicle, you pay around 3% of the present cost of vehicle, but to yourself at the age of 30 for say 10 lacs & term 25 years, you need to pay not more than Rs.2500/- which is 0.25% of the SUM ASSURED. Now, do you think it is costly?
Term Insurance is the cheapest policy available and hence hardly talked about by agents and even insurance companies never promote such cheap and low cost product. Do you think, the Seller and the manufacturer will be interested in selling you the BEST product which is actually very cost effective and does not give them the profit that they desire?
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