Most people proactively don’t give too much thought to how much life insurance they should buy. That’s because insurance as a product has traditionally been sold by agents in India, instead of being bought proactively by users.
Till late 90’s insurance sector was dominated by LIC agents. Usually a family LIC agent would invariably sell some or the other policy on each visit. There were no objections made for the family friend selling a government sponsored product. Therefore, your parents landed up buying these LIC policies, one after the other without knowing why they were even buying these policies. Neither the LIC agent was aware of how the policy would operate nor were your parents interested in knowing. Guess what, the tradition continues; only the generation has changed but still new generation is buying insurance products as a tool for making money. Big mistake!
Life insurance is an important tool of risk management. Whenever you combine life insurance with investment objective, risk management will take a backseat. Therefore, it is strongly recommended to have sufficient risk cover before you are start evaluating investment linked insurance products.
A term insurance product is essential to provide risk cover at a reasonable price.
A 28 year old male non-smoker term policy for a cover of Rs 1 crore comes around Rs 10,000. Whereas the 1 crore insurance cover through an investment linked insurance product comes at a premium of Rs 275,000. Think about it, why not take a term plan of Rs 1 cr by paying a premium of Rs 10k p.a. and invest Rs 2.65 lacs in a growth asset.
The first step of buying a life insurance should be in the form of a term plan. The recommended way of buying a term policy is after determining the right amount of cover that is required by you.
Ideally, one should have a risk cover equal to atleast 20 times your current annual income.
i.e. if you earn Rs 10 lakhs per annum, your term insurance cover should be atleast 2 crores.
The first tenet of investment is Protection – If your family is protected financially, you will also sleep better at night.
Get that term insurance policy if you haven’t got it yet. Talk to Us.