Life insurance is an important part of any individual’s financial plan.
Life insurance is primarily sold in India as a tax-saving tool and a savings tool. Life insurance should only be purchased to provide security for our families. We have met many people who are unaware of life insurance and what type of insurance they have. Many educated people don’t feel the need for life insurance policies or purchase during January/Feb/Mar to reduce income tax.
This leads to a lot of people thinking insurance is an investment, but they don’t realize what they are actually getting into. Insurance is often portrayed as an investment because of the abundance of advertising in different media. Agents who sell insurance products make attractive commissions.
Let’s now look at what life insurance actually is. It is a contract between the insurance company (insurer) and the insured. The nominee will receive a sum assured (sum assured) if the insured dies. Life insurance is designed to protect the loved ones and family members of an insured person so they are not left with financial hardships.
Insurance does not provide risk coverage. High charges can reduce the return on investment. You will also have to keep paying premiums for a long time. Avoid agents who claim that they will only pay for 3 to 5 years. This is a scam to sell insurance policies. The agent’s illustrations are only projections. You will see that the returns for a long time range from 6 to 8 percent if you actually calculate them. Because of high policy administration and agency commissions, this is a significant problem. There are other avenues where investments can yield higher returns than inflation. You can avoid paying high commissions for various investment plans offered by insurance companies.
Life insurance serves one purpose. It is designed to replace economic losses in the event that the insured dies. Your family should be protected from financial ruin in the event that you die. The following factors should be considered when calculating the amount assured.
1) The value of any outstanding loans
2) Future value of expenses, such as education and marriage
3) Calculate how much money is required to invest in a debt fund that will provide a passive income for your dependents in your absence. This amount should be enough to provide a decent standard for living.
Keep in mind that the amount of insurance you require may change over time. It decreases for most people as family obligations and investments in different asset classes increase. It may happen that insurance coverage is no longer necessary if you are financially secure.
The policy will be cancelled if you purchase other insurance plans or fail to pay the premium within a few years. You will also suffer a huge loss if you surrender the policy. The surrender value will be less than the premium you paid.
Pure life insurance coverage of Rs. 30 is possible for a 30-year-old. 1 crore, which is approximately Rs. 1 crore for approximately Rs.
When you next buy life insurance, do your research and ensure that you only purchase term insurance to protect your family and not to benefit the agents or the insurance company.
