Life Insurance – A primer
In the recent past, quite a few of my friends emailed me some or the other insurance and investment combination policies asking for my opinion whether it makes sense to invest in them. Here are my views.
• Keep investment and insurance separate. The two shall never mix. In my opinion, ‘investing’ in Insurance is the easiest way to remain poor. Hence only buy life insurance policies which don’t give you any money back – unless you kick the bucket during the term of the policy. So, the only policy worth buying is the TERM plan. All insurance companies offer these. The usual ULIPs, Endowment Policies, Money back policies should be avoided like the plague.
• If you want insurance, buy pure insurance (Term plan). If you want to invest your money, invest it yourself. You could invest it directly in Mutual Funds, Reits, FDs, Real Estate, etc, etc. Wny go through an insurance company to invest your money?
• Buy life insurance for the right reason. For example, a car insurance covers damage to your car. A home insurance covers damage to your home. What does Life Insurance cover? Give it a thought. It covers the income of people who are dependent on you. So, the only time to buy Life Insurance is when the answer to the question “Is someone dependent on my income?” is ‘Yes’ and the cover should be stopped as soon as the answer changes to ‘No’.
• How much? The policy should be for around 10 times the annual income + any liabilities. In any case, it should be for a minimum of one crore. Buying a policy of 5 – 10 lacs, as is usually the case, is useless. At the age of 30, the premium for a term policy of 1 crore is around 10 – 12,000 per annum. One should buy cover till the age of 65 – that is when one is reasonably expected to be free of any dependents.
• Look for the ‘exclusions’. Ask for them specifically and they should be mentioned clearly in the policy document.
• Fill out the ‘proposal’ form yourself and be truthful. Do not let the agent fill out the form. He would be reluctant to give information that may lead to the policy being rejected – for example, if you have a family history of hypertension, the agent may not mention it. But if, in the distant future there is a claim and the insurance company finds out that some information was incorrect on the form, they will definitely reject the claim – they can legally do so.
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**Life insurance agent to would-be client:
“Don’t let me frighten you into a hasty decision. Sleep on it tonight. If you wake in the morning, give me a call then and let me know.”
**Q: How is a hospital gown like insurance? (New)
A: You’re never covered as much as you think you are.
**A drunk wanders into the lounge of a hotel where an insurance convention is being held, intent on causing trouble. He yells, “I think all insurance agents are crooks, and if anyone doesn’t like it, come up and do something about it.”
Immediately, a man runs up to the drunk and says, “You take that back!”
The drunk snears and replies, “Why, are you an agent?”
“No,” the man replies, “I’m a crook.”