People cite many reasons for not buying term life insurance. Find out why they are
The reasons for not buying term insurance are both bizarre and untenable. Abhijeet Chatterjee does not buy term insurance because he does not have enough cash. “I may not have adequate life insurance, but buying a policy requires money,” the Kolkata-based bank executive slams before signing off.
Term insurance coverage is very cheap
Insurance premiums of Rs 1 crore cover up to the age of 65.
Surat-based Nilesh Makhija is also uninterested in discussing the gaping hole in his life insurance coverage. “I’ll call you when I want to take out life insurance. Right now I’m busy,” he said abruptly. In Bangalore, software professional Arjun Sethi harbors ambitious plans for his preschool son’s overseas education and early retirement for himself, but his life insurance coverage is less than four months of income. “I’ve been thinking about buying a term plan for a while, but I never got around to it,” he says sheepishly. We have so many questions for these people. Chatterjee is the sole breadwinner in his family. If he cannot spare Rs. 12,000-15,000 to buy temporary insurance, how will his family cope if something bad happens to him? Makhija is busy and can’t be bothered with a discussion about life insurance. What’s more important than protecting your family’s financial future? Sethi realizes he needs insurance, but has dithered the decision. Not only does he expose his family’s financial future, but he will have to pay more for each year of delay.
Do you need life insurance?
Financial planners recommend purchasing life insurance coverage that can effectively replace one’s income after settling all outstanding debts. This is especially true for those who are the sole breadwinners. On the other hand, if you have accumulated enough assets and have no liabilities, you may not need life insurance at all. However, people can make this calculation wrong. Amol Thorat (see photo) has not taken out life insurance because he thinks he does not need it. His wife is also working and they have significant financial assets and property. “I had a term plan for Rs 25 lakh but it expired due to missed bonuses about seven years ago. I have not revived this policy, nor purchased another,” he says.
Although Thorat is confident he has enough assets, he has not considered his daughter’s education and other goals nor the Rs 60 lakh home loan he plans to take out to buy a new house worth Rs 1.2 crore. Vaibhav Kumar, head of product management at Max Life Insurance, says Thorat needs cover of at least Rs 2.5 crore. “Financial planning is incomplete without life insurance. As a young father and husband, Amol’s responsibilities to his family are significant,” he says. “We also recommend life cover of 10 times his annual income for his wife. She is a paid member of the family and an equal partner in the family’s overall financial planning. »
Buy now without waiting
Someone once said it was better to buy insurance yesterday. But that wisdom is lost on many people, who think they have enough time to plan and purchase life insurance. Meet Arjun Sethi, a 34-year-old IT professional who earns Rs 42 lakh per year. Sethi wants her son to go abroad for higher education which could cost him around Rs 2 crore. The only problem is that this plan assumes that he will continue to earn and invest for this goal. The risk of his death was not taken into account. Sethi has only three mainstream plans covering it for Rs 12 lakh.
Bajaj Allianz Life Insurance says Sethi is grossly underinsured and should buy a term plan immediately. “Term insurance provides financial protection to the family in the absence of the breadwinner. It helps them achieve their life goals. Arjun Sethi should have a life cover of at least Rs 4.2 crore, which is 10 times his current annual income,” a company spokesperson said.
Since Sethi wants to retire early at age 50, he can opt for a limited bonus payment plan. It will only pay for 15 years, although coverage can continue for 25 years. These limited premium payment plans are especially useful for those who may not be able to pay premiums later in life.
Don’t expect returns
Many people avoid buying term plans because there is no value at maturity. The insured receives nothing if he survives the term. “Term plans only give money if I die. I will get nothing if I survive the term,” says Delhi-based small business entrepreneur Mayank Agarwal. be treated as an expense, not an investment After all, you buy insurance for your car against damage or theft, but you don’t expect any return on that premium.
For people like Agarwal, insurance companies have devised plans that refund the full premium if the insured survives the term. The arrangement appeals to people who are looking for returns from the insurance plan. However, the premiums for these options are significantly higher than those for the regular plan. Indeed, if they invest the difference in a risk-free instrument, they would have a larger corpus than what the insurance company will return at the end of the term. The only positive feature is that it makes them buy the insurance coverage they need.
Since term plans do not have an investment component, the entire premium is spent on purchasing the insurance coverage. They are essential for people like Agarwal who have outstanding loans and other debts. Abhijit Gulanikar, Chairman of Business, SBI Life Insurance, said Agarwal would have to buy life cover of at least Rs 3 crore to cover the business loan of Rs 26 lakh, provision for his son’s education and replacement income for the family.
If he does not want to pay a premium every year, Agarwal can opt for a single premium plan. They are particularly suitable for independent professionals and businessmen with lump sum incomes. He can also opt for a limited premium payment plan.
All insurers offer term policies. Also, regular plans include single premium plans, limited premium payment plans, and increasing coverage plans. Choose the plan and variant that suits your financial situation.
Also Read: What to Look for in a Term Life Insurance Policy