We wear Helmet but not to cover
From child hood we have been listening lot many of things about Insurance..And almost every house hold has one either in the name of the head of the family or children.We generally doesn’t even bother to understand the product feature since we take it from one of our relative,friend,known who is advisor or from a bank in which we have our bank account.
Why it is said Helmet
Insurance is imperative..Having no insurance is same like you don’t wear a helmet …But what kind of helmet should you wear …what should be size of that helmet …which co’s helmet should you buy,,,
See first need to understand why it has been said Helmet …What does a Helmet do ..it protects your head..Does it give you Something back…or if you are given an option where in you can choose an option that your helmet will Cost you less, or there is a replacement guarantee and other return benefits but it will cover your half head..Will you buy it…
You will never buy it because you need complete protection…Same goes with the Insurance…The most important and key element of Insurance is the sum assured (Amount paid in case of death).Ideally Sum assured should be an amount if it is invested in Fixed deposit it should give a per month interest equal to your family house hold expenses.
Lets understand How Sum assured according to income and expenses of the family is a complete protection:-
Ramesh earns 50000 Per Month..His house hold expenses 30000 Per month ..rest 20000 rs he spends on his personal habits,Income tax and other things…It means that 30000 Per month is absolutely necessary even in the absence of Ramesh.
Ramesh Wife Sunita is 30 years old. Her life expectency is 80 years old..it means Ideally ramesh should protect Sunita for 30000 Per Month for 50 years (80-30).Another question comes to mind that this 30000 Expense is today will it be same lets say after 10 years,20 years or so.
Answer is NO.The family which is surviving today in 30000 probably will not be able to give school fee of the kids in this amount after 20 years.for this We will need a Sum Assured which will be inflation adjusted.For that we take inflation into consideration while calculation.
After calculation the inflation adjusted Sum assured which is a right size Helmet for you.In the Above case after inflation adjustment Ramesh will need a Sum Assured near about 80 lacs which will cost him at the age of 30 approximately 10000-12000 Rupees per year.This amount may increase if somebody consumes tobacco(Gutkha,Cigratte,Alcholol).
Now you decide which policy in this world can cover you with 80 Lacs which is real protection in this amount…So first wear a right size Helmet then Invest in any other Investment plan
This kind of Helmet called Term Insurance…(A real Protection).
Key feature of a term Insurance
1. Large Sum Assured which can meet your long term and immediate liabilities
2 Only Death Benefit.
3. Inexpensive Premiums and Premiums remain the same through out the term
4. Early you buy ..less you Pay
5. No Returns or Premium back
6. Large sum assured gives a financial protection in real terms
Now you can decide from which company you want to buy it :-
*Excluding Service Tax
Hope this information will help you to understand the requirement of term insurance and choose among options
Rahul Agarwal (CFP),NSE Certified in Portfolio Manangement