Whenever you hear about insurance then the buzzing product will be “Term Insurance”. Yes we all know the importance of insurance in our life. Being the planner I too recommend it on high priority before proceeding for any investment. But is it required for all?
To proceed further let us understand why this Term Insurance is must for us. This product actually meant to give financial support (equal to SA opted) to insured person’s dependents in case of his death so that they will not suffer any financial burden. But if a policy holder survives till the end of term, then he will not receive anything from this plan (but currently in the market there are other variants where you will get back return of premium what you paid). This makes a lot of of people to stay away from the product as nothing will be receivable if they survive till the policy matures.
Is it required for a person who have enough asset to take care of his dependents post his untimely death or for someone who does not have any financial dependents (remember financial dependents is different from dependent)?
Well going by definition of “Pure Insurance” we may say that, no pure insurance is not required in both the cases. But when we go deep, things and the limits of our life change drastically. To explain in detail, I thought to share the live examples of my two clients.
1) I met Mr.X three years back when he was just married and both he and his wife were working. They both have enough assets to support their expenses for the next 15-20 years (In case of job loss or loss of life). They both have good earnings. So when I first spoke with him about the importance term insurance, he straightaway rejected my offer. Saying he doesn’t need any insurance as he don’t have any financial dependents and if something happens to either of them then they can survive without any financial difficulty. He was not in a mood to buy the product.
A few months back he came back to do Financial Planning for his kid’s education and marriage goals. In the mean time he quit his job and started his own company. So compare to our previous meet this time he seems to be widened his finance and risks (investment in his own company and expenses he need to bear for his kid). This time when I convinced about the term insurance he immediately agreed to buy it. This time he agreed to buy, because he now understood heat of the financial commitments towards his company and kid in case of his untimely death.
2) Recently I met an unmarried woman who is in her 25 Yrs of age and working in Software company. During our first discussion I recommended her to buy term plan. Her answer is true and realistic. She replied that as she is unmarried and both of her parents are not financially dependent then she felt Term Insurance is not the necessary product for her. Completely agree to the current situation.
Let us consider the first example. If he heeded my advice on buying term plan two years back then he might have saved his premium amount. Because insurance premium will rise as you grow older. In the second example, currently she may be not in need of term insurance but what if she has financial dependents in the future? If she tries to buy at that time then premiums will automatically jump to what today for her. Strange to say that in both the cases they have plenty of traditional and ULIP plans, which they are thinking as if investment but not insurance. Also they don’t know how much insurance coverage they have
Analyzing both the cases we may conclude the importance of term insurance in below points.
1) Life Insurance (I specifically mean term insurance) is the product one must have it on priority.
2) Postponing will actually cost you more than buying now.
3) Your current financial condition may force you to stay away from term insurance. But no one knows what will be your future financial life.
4) Your age, need and earnings will change year to year so is your life risk. So covering them properly is the wiser.
5) Finally analyze your current insurance coverage from your existing insurance products and need to review your life insurance need periodically. Buying today around Rs.1 Cr term plan and staying away from any insurance buying in the future is not worthy. You constantly need to analyze your financial health.