Insurance is a simple and a commonly used word. It becomes more But hardly 60% of the Indian population is insured. Alarming, isn't it? And when we do some more research and try to calculate the number of persons who are adequately insured, we find the the percentage dropping down considerably.
Lets understand it with an example.
There is a guy named Mr. X, aged 30 years. He had a wife and 2 small children. His annual income is INR 10 lakhs. One day he planned to get his insurance done. The following questions will hover on his mind.
1) Why should I get insured? I am just 30 years. I have many more years to live.
2) Why should I spend my hard-earned money in something which I am not expected to get back.
3) Ok. Even though I am planning to get the insurance done, I will plan for the lowest amount. Atleast my loss won't be too high then.
4) Why should I plan for my death?
These are some of the questions he will be thinking before going for an insurance. Now, let us try to analyse each question one by one.
Q.1) Why should I get insured? I am just 30 years. I have many more years to live.
First of all, life is very much unpredictable. With so many diseases and accidents happening in today's world, one can never be sure about his age at the time of death. Also the earlier one get the insurance cover for himself, the lower premium one has to pay. So even financially, it is better to get the insurance done as early as possible.
Q.2) Why should I spend my hard-earned money in something which I am not expected to get back.
Let us be clear that this is not an expenditure that one does, instead it is an investment that one makes. So taking it from expenditure point of view is a wrong perception. The next thing one should be clear about is that there are a lot of policies for an individual. The only policy where one can't get money back is the Term Policy. If one is not interested in buying the Term Plan, than he can go for the Endowment Plan, Pension Plan or Money Back Plan. Let us know something more the plans.
Endowment Plan: In this plan, one gets the money back on surviving the policy term. The money one gets back will be the sum of the amount one had taken the insurance for and the Bonuses. There are two types of Bonus: Reversionary Bonus and Final Addition Bonus, a.k.a. Loyalty Bonus.
Pension Plan: In this plan, one get the money after he attains a certain age. The cash-flow amount and duration can be decided at the time of taking the insurance.
Money Back Plan: In this plan, one gets the money after every fixed period. It is like the checkpoints between the inception of the policy to the maturity of the policy. For example, one takes the policy for himself for 20 years. And he has some short term plans and some long term plans. By getting money, say for example, he can money after every 5 years. So he can plan to use that money to buy a new car after 5 years. The second money back will be after the completion of 10th year. He can use the money to plan a family vacation abroad. Similarly, he can plan something grand for the 15th and 20th year.
Term Plan: In this plan, one will not get any money back at any stage of life. The money will be paid only in case of death during the policy period. But the benefit of this plan is that it shows how much concerned are you towards your family. It shows you value your family more than yourself. It shows that you want that your family will go on with their financial expenses, even in your absence. Being a good family member is all about keeping other family members happy, whether you are with them or not.
Q.3) Ok. Even though I am planning to get the insurance done, I will plan for the lowest amount. Atleast my loss won't be too high then.
As said before, insurance is not an obligation of one for the insurance company, rather it is about the obligation towards your family. The thumb rule can be made here. Always have an insurance cover of atleast 12 times the present annual income. Why? Because the current interest rate on Fixed-Deposit is 8 per cent per annum. So taking the example of Mr. X, here is a rough calculation.
Present Income: 10,00,000
In case of Death, income: 0
Optimum Insurance Cover(12x): 1,20,00,000
If this money is deposited in the bank, then interest income: 1,20,00,000*8/100 = 9,60,000.
Now this interest income can easily take care of the financial expenses of Mr. X's family.
One thing to be noted here is that: The expectation is that the interest rates on FDs might get lower in future. So it is advisable to keep analyzing one's insurance cover from time to time.
Q.4) Why should I plan for my death?
By buying insurance, one is not planning for his death. Rather he is planning that the smile of the family remains evergreen even after his death. It said that, though the insurance will not make one rich. But definitely, it will avoid his family become poor in his absence. His children are the gift of Gods. The smart investment in the form of insurance will definitely make sure that the quality of them is not compromised.
The next time you buy insurance, make sure you do take your family happiness in consideration and also make sure that the quality of your complete family does not get deteriorated.
"If we can insure our mobile with the cover and a screen guard, why can't we insure ourselves too!!! After all, a phone can be bought again but we won't get the second chance"
