I bought my first life insurance which was an endowment plan with a premium of INR 36,000 per annum. I had this very trusted, family Insurance uncle, who helped me buy the so-called life insurance. I believed that buying this insurance was a right investment decision and I just made everyone financially secure in my family.
The Policy was as under:
|Type of Policy||Endowment Plan|
|Premium Per annum||36,000|
|Total Period of Policy||15 years|
|Amount Paid for 15 years||540,000|
|Gains in %||5%|
Like most of us, I did not calculate the exact return I would get from the policy. I had to invest only INR 3000 per month and it gave me a life cover of around 20 Lakhs.
Eventually, as I started reading about financial planning and Insurance I had the following questions in my mind.
- If I die after 15 years, my policy will expire within 15 years and then I will not get any death benefit. Hence, is it enough to hold a policy for 15 years?
- On my death, my dependents would only get INR 20 Lakhs, is that amount enough for them?
- Won’t I have more dependents as I get older, spouse, children and parents? Will this one life insurance policy enough?
- The biggest question of all was, if I invest this INR 36,000 into any mutual fund for the next 15 years, I would get a return of 8 – 12% as compared to the return of 5% in this endowment plan. Why should I invest in endowment plan?
The obvious answer was to let go this endowment plan and obtain a term insurance which would cater to all of my insurance needs. I spoke to my very trusted insurance uncle.
He told me why I need a term Insurance; I will not get anything in return. It is all your premium amount wasted.
I was confused; I tried explaining him the mutual funds v/s endowment plan concept. He was just not ready to sell me a term insurance. I had by then done enough reading to know why term insurance is better and I must own it.
Brief of my term Insurance plan
|Type of Policy||Term Plan|
|Premium Per annum||7,000|
|Total Period of Policy||35 years|
|Amount Paid for 15 years||245,000|
|On Death||1,00,00,000 (1 crore)|
|Gains made||Dependent’s future|
|Gains in %||Dependent’s future|
|On Maturity (if you survive)||Nil|
Here are my reasons for the same:
- Term Insurance is a pure life insurance product. It means if you die during the policy period, then your nominee will receive the entire sum assured.
- If you survive till the end of the policy period, then you will not receive any maturity amount, the premium paid is very minimum and it’s the cost that you incur to insure your own life and secure your family’s future.
- The policy costs you very less and covers a large amount of life risk. I have a policy with a cover of 1 crore and I pay a premium of 583 per month (lesser than my travel expenses per month) On my death, my financial dependent, whom I nominate, shall receive the life cover amount. However, it is very important to get the term insurance of the right amount. We have discussed the same in Points to note before while buying term insurance.
- If you think, you will never have anyone who will be financially dependent on you in the future (in case you do not have anyone now), you must definitely revisit this thought. Finances and money are one of the most unpredictable subjects and the best is to insure such volatility. Term Insurance if bought at the right age will cost you less and can be obtained without any medical tests. We have discussed the same in Points to note while buying a term insurance.
- It covers the FINANCIAL RISK OF YOUR LIFE.
- However, nowadays there are so many variants in Term Life Insurance. For example, the return of premium, Term Life Insurance up to 100 years of age and many other riders. If you do not want any financial hassles for your dependents, stick to simpler financial products.
- It is super easy to buy the term insurance online. Refer our Article –Myth about buying term insurance online.
- The brokerage that agents get on term insurance is also low and thus, they do not sell it as much as the other insurance products.
An honest financial advisor will always ask people to first own a term insurance before advising on other investment products. If your financial advisor is telling you not to buy the term insurance or is against it, you should revisit the same.