A Pure Life Term Insurance policy is the most important form of financial protection you can have for your family.
When you buy a term insurance policy, it offers financial cover for a specific period of time. In the event of your unforeseen death, your family is paid a large sum of money as a one time benefit.
Among all types of insurance policies, term insurance provides the highest cover at the cheapest price.
How much term insurance cover can one buy ?
Let’s say you earn Rs 10 lakhs per annum and your spouse and children / parent’s are dependant on you.
Based on your income, you can buy a term insurance cover of upto 20 to 25 times your annual income.
At a minimum, you should have a cover of atleast 20 times or Rs 2 crores term insurance cover.
Ok, Why 20 times cover ?
Taking the income example of Rs 10 lakhs, if you were to die suddenly, since you were the only income earner, it might put your family in financial difficulties ( apart from also dealing with the emotional stress of your loss )
If your family gets Rs 2 crores, as a simple step, then can just put that amount in a Fixed Deposit.
At an annual return of approximately 7%, they will get Rs 14 lakhs as interest every year.
They will need to pay about ~17% tax on it, so the net income will be 83% x 14 lakhs = Rs 11.6 lakhs
This income will carry on for life.
So while your presence in your family’s life is irreplaceable, at-least they will be financially secure ( think home loan EMI’s, school fees etc which will all be taken care of )
Hmmm, so why isn’t this policy more popular ?
The two word answer – Lower Commissions.
Term Insurance is the CHEAPEST form of insurance you can buy. Yes, you read that right.
For a 30 year old, a 2 crore cover will cost about Rs 15,000 per annum ( It can go up if you smoke, have a pre existing illness etc )
Now you may wonder why most insurance agents don’t encourage you to buy term insurance.
Most insurance policy pitches go like this:
” Pay Rs 50,000 per annum as premium, get Rs 5 lakh insurance cover AND get Rs 20 lakhs after 20 years ”
You might think, “I will pay Rs 10 lakhs over 20 years ( 50,000 x 20 years ) and get back double my money. I will also be insured. Sounds good – Let’s buy it ”
The agent is also happy because he makes a commission of about Rs 15 – 20,000 ( 30 to 40% of your first year’s premium )
If the agent had sold you the term plan, he would have only got Rs 4500 ( 30% of Rs 15,000 premium )
So why would agent’s and insurance companies push term insurance plans over regular plans when they can make more money.
There is a much bigger problem though !
Even if you ignore the agent making more money, the bigger problem is that by buying the money back policy, you may think you are sufficiently insured and protected.
The reality however is that you are severely UNDER PROTECTED.
Think about it – If you buy the Rs 50,000 per year premium policy, you will have cover of only Rs 5 lakhs.
If you die early, your family will get Rs 5 lakhs + maybe a bonus. Let’s assume they get the entire maturity amount of Rs 25 lakhs.
Will Rs 25 lakhs be enough to replace your income of Rs 10 lakhs per annum
The answer is NO.
If Rs 25 lakhs is put in a FD, it will only earn interest income of Rs 1.75 lakhs ( instead of the Rs 10 lakhs you were earning to support your family )
Think About it !
If you have a car worth Rs 5 lakhs, you are probably paying an annual insurance premium of around Rs 10,000 to protect it.
Is paying Rs 15,000 a year too much to protect your family for a cover of Rs 2 crores ?
If you don’t have term insurance cover and would like to get it, talk to us today.