How much life insurance do we actually need? This is a question that comes to mind when one weighs their insurance options. Most of the time one is presented with general figures that don’t match exactly what they are looking for. It is often a rabbit hole of information with no hint as to what is right and what is not quite.
We know the power of information, and just how important it is to get the right insurance policy. We are here with a few personas just for you to help you narrow down on certain action points and things you should consider when choosing your insurance policy.
Use the links below to jump to the section that best suits you, or stay and read on!
- Life Insurance Policy for 25-year-old Influenced by Conservative Parents (click here to jump to section)
- Term Life Insurance Plan For 30-Year-Old Entrepreneur With Dependent Spouse and Home Loan (click here to jump to section)
- Life Insurance Needs of 35-Year-Old Male With No Dependents and No Loans (click here to jump to section)
- Life Insurance Requirement For 40-Year-Old Male With Family (click here to jump to section)
- Life Insurance For 45-Year-Old IT Professional With Retired Parents (click here to jump to section)
- Life Insurance For 50-Year-Old Successful Businessman (click here to jump to section)
Should You Listen To Your Parents When Making An Insurance Decision?
Sunil is a 25-year-old accountant. He recently received a pay hike and was earning a little over Rs. 7 Lakhs a year. His career was taking off. Sunil knew little about insurance policies, but he wanted to protect his ageing parents. His father would retire in a couple of years, leaving him to be the only breadwinner. Sunil began exploring different plans online and learnt that for his case, he would need a term insurance plan. His family agent brought a variety of insurance products that had an investment component and discouraged Sunil from buying term insurance. Sunil’s parents were very traditional and insisted that he listen to their agent instead of buying a term plan.
His agent provided a plan that covers him for 10 Lakhs and returns his money back in 20 years. Whereas the term plan he’s looking at is for Rs. 2 Crores and covers him until he turns 60. What should Sunil do?
|Annual Income||Rs. 7.2 Lakhs|
|Human Life Value||Rs. 1.8 Crores|
|Money Back Policy Insurance||Rs. 10 Lakhs|
If Sunil considered the time value of money, the return from the money-back policy was around 4%. He was better off with a fixed deposit or a bond. His parents would become financial dependents in a few years, Rs. 10 Lakhs would take care of their expenses for a little over a year. A 2 Crore policy would comfortably take care of their retirement.
Why Should You Buy Term Insurance Early?
Ajay is a 30-year-old entrepreneur. He’s been running a successful business for the last eight years. He recently bought a house and has an outstanding home loan of Rs. 30 Lakhs. On his thirtieth birthday, Ajay decided that it was time to insure his life and health. He spent a lot of time talking to an insurance agent. He displayed a lot of curiosity in understanding these products. However, he kept looking for a “better” product and was always deferring his decision. Ajay lost five years to indecisiveness and ended up buying life and health insurance when he was 35.
|Annual Income||Rs. 12 Lakhs|
|Loans||Rs. 30 Lakhs|
|Life Insurance Needs||Rs. 2.7 Crores|
|Life Insurance Premium p.a. at 30||24,000|
|Life Insurance Premium p.a. at 35||30,000|
|Cost of delay (excess amount paid)||30,000|
The longer you put off buying term insurance, the more you’ll pay in terms of premiums. Ajay ended up paying more than one year’s premium by delaying his decision. Insure early at affordable prices.
Do You Need Insurance If You Don’t Have Dependents or Liabilities?
Satish was a self-made man who had been supporting his family from a young age. He had paid for his own education and his sister’s wedding. He was 34 years old and worked at a top MNC drawing Rs. 10 Lakhs a year. Satish had put off getting married until his responsibilities to his parents and sister were done. Having worked his way up, he was very conservative and conscious of his insurance investments. Satish’s employer-provided a health insurance plan, but he had no life insurance and didn’t feel the need for it.
|Annual Income||Rs. 10 Lakhs|
|Loans (Personal)||Rs. 3 Lakhs|
|Life Insurance Needs||Rs. 2 Crores|
In Satish’s case – insurance may not seem like a natural choice. After all, he had settled his parents and sister financially. But what would happen to his parents’ financial stability if something happened to him? To ensure that his family was financially secure in all circumstances, Satish needed a term life insurance plan.
ULIP vs Term Insurance
Bhuvanesh was working at a start-up and had an exciting career. His wife was a homemaker and spent her time raising their two daughters. Bhuvanesh bought a house on his 30th birthday and was still repaying his home loan. He was a fan of unit-linked insurance plans (ULIP) because they combined insurance, investment, and tax. He primarily saw insurance policies as a way to save tax. Over the years, Bhuvanesh had purchased 8 different insurance policies. He believed that he had made the best decisions and was shocked to realize that he was underinsured.
|Annual Income||Rs. 16 Lakhs|
|Loans||Rs. 25 Lakhs|
|Dependents||Spouse and two children|
|Life Insurance Needs||Rs. 3 Crores|
|Existing Cover||Rs. 1.1 Crores|
Insurance policies are not good investments. ULIP can be expensive and deliver sub-par returns. More importantly, in the new regime, there are no deductions and proceeds from ULIPs may become taxable. Bhuvanesh would be better off with a term insurance plan and is free to make more productive investments. Here is a podcast just for you on how insurance can build wealth!
Should You Surrender Your Policies That Your Friend Sold You?
Ramesh was a successful software engineer at one of India’s leading IT firms. He recently turned 44 and was drawing an income of Rs. 35 Lakhs per year. Ramesh’s close friend, Adithya, was an insurance agent. Adithya ensured that Ramesh’s family had all the right insurance policies. He also ensured that they used insurance as an avenue for savings. Ramesh met with an investment adviser who recommended that he buy another term insurance policy for Rs. 3 Crores. But Ramesh was already spending a lot on insurance premiums and didn’t want to spend more. Ramesh was uncomfortable discontinuing his investment policies because of his personal equation with his friend.
|Annual Income||Rs. 35Lakhs|
|Dependents||Parents, Spouse, and two children|
|Life Insurance Needs||Rs. 4.8 Crores|
|Existing Cover||Rs. 2 Crores|
There are several advantages to choosing a friend or a relative as an insurance agent. You are assured of good service. You know they have your interests at heart. However, insurance is only for risk management. Mixing insurance with investments doesn’t yield the best results for you. Ramesh could have stopped the investment policies and purchased a fresh term policy with Adithya.
How do you make time for insurance and investment decisions?
Soorath is 49 and is a third-generation entrepreneur. Through his career, he expanded his family business and is able to draw an income of Rs. 1.5 Crores per year from it. Naturally, Soorath is quite preoccupied with his business affairs and doesn’t make time to review his finances. He’s quite open-minded about listening to financial advice. He noticed that insurance premiums would become significantly more expensive in his fifties and wanted to lock-in to policies at a more affordable rate to protect his family. He wasn’t keen on surrendering his older less productive policies because he was only paying a few Lakhs as premium. Lack of time was the only thing standing between Soorath and a comprehensive term insurance plan.
|Annual Income||Rs. 1.5 Crores|
|Loans||Rs. 1 Crore|
|Dependents||Spouse and one child|
|Life Insurance Needs||Rs. 15.8 Crores|
|Existing Cover||Rs. 35 Lakhs|
Soorath kept postponing the insurance decision because he believed it would take a long time. One common misconception is that buying insurance is a huge time commitment. In Soorath’s case, he needed to set aside 20-30 minutes to meet his agent and fill out the paperwork and schedule a medical test at his house at his convenience. The medical test wouldn’t take up more than 20 minutes of his time. One hour of your time is worth your family’s financial wellbeing.