“Life Insurance karaya kya (Did you get Life Insurance done?)” – Typically this is part of all water cooler conversations in the last quarter of the financial quarter (Jan-Mar). Earlier in the year the savings declarations have been done and now the Damocles sword is hanging to pay some insurance premium before 31-Mar due date. Having figured out that most of the life insurance policies are sold at this time of the year, the Insurance companies also release a frenzy of advertising across all media channels to sell their own products.
Typically, this is how the water cooler conversations go and the decisions are made:
“I need to pay an insurance premium of 10k per annum to max out on my deductions and the ABC agent will do all the paperwork for me”
“The XYZ company will return my 20k insurance premium after 15 years and I will also get a tax break now so I am going for this plan”
“Our manager is taking the DEF policy so lets take the same policy”
“My uncle who is an insurance agent has recommended this policy and he says it is the best”
No where in the conversation there is a discussion about the risk cover required, the duration of cover. So what is the result….read on:
I was recently talking to someone about his Life Insurance cover and this is how the conversation went:
Me: Are you adequately covered with Life Insurance?
Him: Yes absolutely!!! I pay a premium of Rs 2 lacs per annum. Actually the next annual premium is due next month
Me: Wow that is great!!! But what is the risk amount?
Him: As I said – I am supposed to pay a premium of Rs 2 lacs per annum for five years and after 20 years I will get Rs 35 lacs back
Me: That sounds good but what is the risk amount? What will the company pay if something was to happen to you tomorrow?
Him (confused): Hmmmm…I don’t know
Me: Please look at the document and let me know tomorrow
Me: So did you look at the insurance papers – what is the Risk cover?
Him: I checked I am all set!!! The cover is Rs 20 lacs
Me: And this is the only policy that you have?
Me: Just to get the facts correct if something happens to you the insurance cover that you have is Rs 20 lacs.
Me: Let’s take this step by step – you are the sole earning member of your family and god forbid something happens to you…you think that Rs 20 lacs and your other current savings are enough for your wife and your son (still in primary school)?
Him: (after a few moments and an ashen look) No!!!
What happened after that does not matter but this is a person who is in his early forties, earning well and is reasonably financially literate. And in this day and age he is insured for Rs 20 lacs.
So how does this happen – it is just the glitzy advertising from the insurance companies playing on the ignorance and apathy of the consumers. The advertisements confuses the customer on the basic question – Why are we taking a life insurance? And How much of cover is required?
The insurance companies love to mix life insurance, investment and loads of commissions and margins and make products opaque and hard for the customer to opt out. The end result is that the product that we end up buying – neither provide us a good insurance cover (as seen above) nor they are efficient investment products.
My guidance to people who are looking for life insurance cover is:
- select a simple online term life insurance plan
- like a car insurance – don’t worry about return of premium or any return for that matter
- fill the proposal forms on your own
- do not lie about your/ family medical conditions on the forms and
- don’t run away from the medical tests, take them if required
How much insurance is required is slightly tricky, ideally I would say hire a financial advisor to get you a financial plan which cover insurance requirements also but you could use the calculators on the insurance company websites that do a reasonable job in getting this number for most people.
So as a first step immediately – check if you are insured enough. This can make a world of difference not to you, but your family who are dependent on you!!!
Please comment below on your experiences with Life insurance policies, distributors and any other parts of the blog.