As I am born and brought up in India, one thing is very common here about insurance policies i.e a misconception that Insurance is an Investment. I don't know what happened in 73 years(after independence) that this idea is still luring in maximal minds.
Insurance is not investment. It is a protection from unforeseen damage.
So I thought to share some knowledge I have gained about it, because out there many people are there particularly of underdeveloped or developing countries who may be having the same misconception. So, let's begin.
1. CALCULATE THE INSURANCE NEED
If you randomly call an insurance company, the representative may tempt you to an excellent insurance policy - FOR THEM, NOT FOR YOU. So you should know how much is your need.!!
In layman's language it should be:
ANNUAL INCOME X 5 = AMOUNT OF INSURANCE COVER
Well that's not it there are also some complex paths to reach to the valuation:
HUMAN LIFE VALUE: In simple language HLV is the number that jots down your present value of your future expenses, investments and liabilities. You just google HLV calculator and put the details and you get the answer.
IRR - Internal Rate of Return is an analysis tool through which you can compare returns from different cash flow streams.
2. THE PREMIUM PAYOUT
Some people don't understand and they end up paying a fortune. You may be earning a handsome money but that doesn't mean you need to look out for the premiums you pay because you may have other obligations like home mortgage, car payments, credit card bills, other EMIs.
So, if you have enough after paying all this then you can easily opt for WHOLE LIFE or UNIVERSAL LIFE insurances which actually give you return too (they are like insurance+ investment).
But if your money restraints are on the higher side then you definitely should go with TERM LIFE insurance i.e., these are for definite terms, like for particular years like 30 years. If within this time you loose your life then your family will get the sum assured.
The negative part of this plan is you consider your own unforeseen end. But remember life is much more important that money. Be responsible with your responsibilities.
The positive point is if god has planned the other way round and you do demise then your family has the financial support of your this insurance because the premium payout is very less and the amount assured is much high.
3. NEED OF RIDERS
Before explaining riders remember that it is very important that before signing any insurance policy you should read it thoroughly. Now that can be quite a frantic task as they are of several pages but it's very important.
Take the example of CORONA VIRUS, maximum insurances around the world are covering it under the section of critical illness. Now before corona came supposedly you took an insurance and and it does not cover this critical illness and you had signed it without reading it. So, when this pandemic hit you may be thinking you got covered if anything happens. But my friend you have already done the damage.
RIDERS are like ADD-ONS. Whatever things are already there in your policy you can add some extra clauses or conditions like medicals.
4. THE TIMESPAN
- Supposedly, you are the sole bread earner of the family. If something happens to you, then the family is doomed. So, it becomes very very important that you got yourself covered al least till the age you retire.
- You want to secure your child's education. Take for example this year only you became a mother/father, then you have 18 years till your child goes to college. So, your policy should mature in 18 years in order to support his/her higher studies
5. CLAIM SETTLEMENT RATIO
If an insurance company receives 100 claims and they settle 98 out of them, then their claim settlement ratio is 98%. This percentage HIGHER THE BETTER. Claim settlement ratio actually helps us to decide whether to go forward with this insurance company or that. Beloe 90% is the danger line, always prefer for the range above 95%.
As we head to the end of the post- Insurance just not only gives you protection and returns, but also qualifies for Tax Deductions
POINT TO NOTE :
DON'T DODGE TAXES, BUT ALWAYS AVOID IT
(After all, it's your hard earned money)
You can make cue card jotting down the points and stick it on your board because some life decisions are crucial. Or you may just print out this, thank me later.
Thank You For Reading
Be Safe - Be Healthy
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