Let me start by stating the obvious first – Term insurance is the best form of insurance. Unless you are super rich (owning a yacht types), I would always recommend buying a term insurance plan.
I would categorise it as THE most important and crucial financial decision after opening a bank account.
Here’s why I think so?
Death is imminent, just the timing is something which has been left a bit less than obvious to predict. Big problem that creates, really Big. And increasingly we are hearing the young friend of friend who passed away freakingly young. No decent amount of savings (unless it’s papa’s jaagir) can be achieved at a young age nowadays. In fact, most of us our hoping for a miracle to happen to save up for our retirement corpus – it could be that 10 crore bonus which you will get when you become a Business Head 10 years from now OR the 120 crores which you will get when you sell your startup which you are yet to start. So let’s face it, if death happens now, your dependents (spouse and kids) are pretty much on their own. That sprawling pigeon hole which you purchased will still have some 17 years of EMIs to be paid. Why why why would you want to leave it this way?
If you are a 30 year old, you can get a 1 crore cover for Rs. 10,000 per annum. And yes, the premium does not change for the rest of the 30 years. Doesn’t that qualify for a rock solid protection for your wife and kids?
So, what is the cover amount you should take?
Around 20 times your annual income.
So, what is the policy term you should select?
At least till 5 years after retirement, say till the age of 65.
And here is what you will have to do to save and create the corpus of 1 crore.
- Invest Rs. 14,000 every month. Yes every month
- Invest for 20 years
- Hope and pray for a 10% return
Oh yes, you need to be alive throughout the 20 years to make the investments too!
I think we can now agree it is a bit prudent to be paying Rs. 10,000 per annum and getting protection from Day 1 rather than hope to invest Rs. 14,000 every month for 20 years and then hope to save that much.
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