Is life insurance is really important ?

Endowment  or money back policy, which is best to get insured!!!

Whether term insurance is a new thing in market?

You will get lot of ideas and you get more clarifications on life insurances in this blog post.

If you are having  endowment or money back policy (you can search in internet using your policy name) with the following reason, please close it immediately with out delay even though your money will loss.

• To save tax under 80c.
• Your father or friend suggest to have one.
• You thought that the money will help your family after your life.
• Thinking that you will get returns in maturity.

I am asking you to make loss by closing the policy , so you will doubt whether Sathish is a good financial advisor?. If you won’t take this decision now , you will be in big loss .Continue reading the post to understand it clearly.

Let me explain my decision on insurance. Without knowing how insurances are working I took Jeevan Anandh – Endowment policy at the age of 28 in the year 2018 for the sake of 80c Tax Saving.

I took policy for 5 lakhs coverage so premium was Rs.29,000 (Including GST) and coverage up to 20 years. Key things on this policy are

1. If my life ends before 20 years my nominee will get 5 lakhs.
2. On my survival I will get around 10 lakhs – i.e. at the age of 48.
3. After 48 years if my life ends again my nominee will get another 5 lakhs.

It looks attractive at that time so I opted for it.

Later in my personal finance learning journey , I came to know about Term Insurance. For your info it is always there , but you won’t hear often due to insurance companies won’t promote it.

After I came  to know the essence of Term insurance , I managed  to open term insurance and closed Endowment policy with a loss of 40k.

LIC only given 60% of premium amount while I surrendered the policy that too I paid for 4 years. In your case if it less than 3 years you won’t get any money while surrendering the policy.

Why term insurance is best?

What makes me close the policy with loss.? It is nature of term insurance convinced me.

I took term insurance policy for 1crore and I am paying 9k per year as premium and my life covered up to 70.

• My life ends my nominee will get 1crore.
• On maturity I won’t get anything means Rs.3,51,000(39*9000) is gone as premium and you won’t get nothing at the age of 70.

Even though I am losing my premium amount I will be in big profit, but How?

 

	Endowment Policy	Term Insurance
Years covered	20	40
Amount paid during my death	5L	1 crore
Premium	29k/Year	9k/Year
On Maturity	Around 10L	Nil

 

We should not mix insurance and investment together then it is benefit for insurance company and not for us. Ok let us discuss why I am arguing Term insurance is better.

If I have endowment policy , incase of my sudden demise my extend family will get 5 lakhs. With that how many days they can lead their life.

• In my family ,wife (Homemaker)and 2 child below the age of 5 is their as my dependent along with mom and dad.
• Having monthly expense of around 30k (with out EMI).
• Beside that children education also a liability on my wife.

Whether all the above basic needs will be taken care by 5 lakhs ?. Answer is Big NO.

But 1 crore is sufficient for my extended family to take care of their needs. If they deposit this 1 crore in bank FD they will get monthly 50k(with interest rate of 6%). With that they can lead their life with out much worry.

“Term insurance gives bigger coverage with lesser premium”

If you want to go for 1 crore coverage in tradition life insurance policy , even if you are in late 20’s or early 30’s your salary may not be enough to pay premium.

Another myth about term insurance is we won’t get returns on premium. That is absolutely true that you won’t get any returns. Because term insurance is pure form of insurance that won’t act as investment.

Traditional life insurance returns will be less that 4% , where as inflation is around 6% year on year.

Still I am not thinking I am losing Rs3,51,000 amount that I paid as premium. With this minimal amount I can insure my family with big figure. End of the day insurance purpose is protect your family during your absence and if you are alive you will take care of your family correct?.

I paid 29k/year for endowment policy ,out of it 9k I am paying for Term insurance and remaining 20k I started invested in mutual fund.

Clearly from the above diagram you can able to understand  term insurance is the winner. All traditional endowment and money back policy will give less returns and less coverage.

So I decided to close my endowment policy with 40k loss and started term insurance and remaining amount I started investing in Mutual funds. After 20 years I will around 40 lakhs instead of 10 lakhs return.

Totally 40,000(reduced by LIC at the time of surrender after 4 years) + 3,51,000(Term Insurance Premium) I afford to lose. It will come around 3,91,000, still I will get 34lakhs as returns after all the things. In Endowment policy after 20 years I will get only 10 -12lakhs.

Wealth can be created with wise decision

So life also covered with 10X of my annual income. So dual benefit I am getting from wise decision with the same amount.

With out delay switch your life insurance policy to term insurance and invest remaining amount in other high return instruments.

How much term insurance do you need?

With all the above thing you can easily predict benefits of term insurance over other insurance policies.

Next question from your mind might be, How much coverage should I take?

Well it depends , still better to have 10X of your annual income.

If you salary is 1L/Month = Take 1 crore coverage this is best to have.

You can cover yourself up to the age of 70. Because after 70 your liability will be reduced , so family won’t be depend on you as your children will be independent at that time and your spouse can get retirement funds after your life ends.

Still nowadays term insurance companies are giving option to cover up to the age of 85,you can decide based on your needs.

I am suggesting you to start term insurance immediately, earlier you start lesser will be the premium. This rule is applicable for all insurance like life insurance, health insurance etc..

After your 40’s premium will be heavy for any insurance policy and don’t regret to surrender your polices that is not giving proper coverage. Remember insurance is only for insure you life and don’t mix it with investment.

Most of the agents won’t speak and companies also won’t promote much about term insurance. Because they will get more benefit from traditional insurance than term insurance.

If you pay premium, insurance company will invest it in other instruments and they will get around 20% per year returns but end of the maturity they will provide 4% as returns to you. Remaining 16% insurance companies will keep.

Nothing wrong in it, insurance companies not doing anything illegally everything will be there in your bond.

Problem with you and me , we don’t know how to manage insurance and investment. So companies taking advantage and earning from this.

Term insurance also not a loss to companies , still they get less ROI as less premium is charged. In this case also insurance companies will get benefit but much lesser than traditional polices.

Most of the amount you are paying towards premium will go as commission to Agents. LIC agents will get more commission for traditional policies and not for term polices.

Importance of term insurance

If you are starting your career , there are lot of checkpoints one should have  the main one is insurance have proper life insurance and health insurance at the early stage , that will give the benefit of less premium.

If you ignore insurance, that will turn as a big financial mistake in you life in the later stage.

Insurance is not an investment and consider it as an expense. If you won’t bring this to your mind, you will lose your hard earned money to traditional policies and regret later.

Imagine in your absence , how the first few years your family is going to suffer psychologically at the same financially also they will face issue then it is going to be hell.

To overcome this situation , you can have term insurance with less cost and more coverage and not other random money back policies.

Things to consider in Term insurance

There are few points you need to know before  purchasing term insurance.

Decide the coverage amount.

Take it in online , LIC and other major life insurance company is giving option to open term insurance online with out an agent. It saves your money and time.

https://www.maxlifeinsurance.com/term-insurance-plans I am having it from here.

You can refer LIC website for term policy https://licindia.in/Products/Insurance-Plan.

Don’t get confuse with different riders, you can take riders later. If you have proper understanding about riders go for it , it will help during irrecoverable accident damages with less cost.

If you are having confusion on that part you can go for Vanilla term insurance plan.

You can cover for more years and pay premium for less years. It will save some money go for it. For example 70 years coverage during my 30th age cost 9,000/year for 39 years. The same if I will pay in 15 years, then it costs 17,000/year for 15 years and coverage will there up to the age of 70.

Don’t depend only on corporate term policy if any your company is providing , take it from outside personally.

Benefits of Term Insurance

Gives more coverage with less premium.

Income tax exempted under 80C Section. If you are having limit in 80c after PF and Term insurance go for ELSS and ignore other options. NPS should be out of 80c and up to 50k can be covered under 80CCD.

Term insurance is better way to protect your life and family , we don’t have any alternative for this as of now.

Without hesitation go for Term insurance , it will save your money and family.

While surrendering the traditional policy you may need your agent support or else you can go to branch office where your insurance was taken. Once you submit the surrender form they will return your eligible money to your account with in a week.

Please let me know in comment box , if you are having any questions about term insurance and other polices.