Going by recent findings, more and more Indians are steadily abandoning their Life Insurance plans within two years of taking them on. Although Life Insurance is every bit the great financial product it’s meant to be, most people buy it for all the wrong reasons.
Why do you need Life Insurance anyway?
You need Life Insurance to…
Save on taxes?
Because that’s what Unit Linked Insurance Plans (ULIPs) are for, right? You keep the government from taking your hard-earned money and as a bonus your family is taken care of in the event of your death.
Wrong!
Earn a return?
Duh! It’s so simple. Take your savings and give it to an Insurance company. They have all kinds of Life Insurance policies that give you great returns on your investments. ‘Moneyback’ plans – a life cover and bonuses. No stock option or fixed deposit scheme does that.
Wrong!
Keep up with the Joneses?
Your folks have Life Insurance, your friends have Life Insurance and your neighbour has Life Insurance. Heck, Jennifer Lopez’s butt has Insurance. There’s obviously something to it. The sales agent even has an endowment plan that comes cheap. It might come in handy.
Wrong!
Be on the safe side?
Not that you’re going to kick the bucket anytime soon but you think it’s better to be safe than sorry. So a basic plan that offers ‘some coverage’ must be found buried under your personal belongings if anything untoward should happen. You’re responsible like that. Or at least your wife will think so.
Wrong!
Cover your dog?
Who’s going to feed him when you’re gone? He’s all the family you’ve got. You need to leave your money to someone and Life Insurance ensures it all goes to the right person at the right time.
Wrong!
Get Real – Why you really need Life Insurance!
The only really good reason to get Life Insurance is to provide financial protection to your dependents.
No, your dog doesn’t really count. Think family. Those who depend on your income for financial sustenance. Like a spouse, kids or aged parents. (If you don’t have dependents, you probably don’t even need it). It’s an open secret that even with the tax breaks on offer, you’re better off tying your money up in run-of-the-mill options like bank FDs or PPF accounts than in a ULIP or other profit sharing plans such as endowments, moneyback plans, pension plans etc.
So why did the sales agent stake his life on these plans? Because he doesn’t have to die to make the policy work for him. His sales commission is covered the minute he cashes your cheque. The more frills to the plan, the fatter your cheque, the more he gets. While these plans do have their uses, they only effectively serve certain types of individuals e.g. endowment plans work well for the very rich trying to create an inheritance corpus.
But if you’re really in the market for Insurance, for financial protection, your best bet is a simple term Insurance policy, the mother of all Insurance policies. Not only is it cost-effective but offers the most value for your dime when compared to any other plan in the market. These pure protection plans give you the highest coverage at the lowest premiums. True it doesn’t feature bonuses or profits but that just means you won’t have to punch a calculator every year to figure out what your life is worth.
Keep it simple
Buying Life Insurance doesn’t need to be complicated. Once you break it down to why you need it, who you need to provide for, and how large a cover you need and can afford, you’re unlikely to go wrong when it comes to choosing the right Life Insurance policy.