I did some research, talked to few people (including insurance agents), did some soul searching and now have found answers to few of these questions. I thought that it may be worthwhile to share this with few more.
So here we go….
Some basics
Before I talk about life insurance I would like to list best things that you can leave behind for your family/ dependents. These are as follows:
- A good legacy i.e. provide good education to your wards/dependents and encourage them acquire life support skills
- Assets that earn income on their own which is sufficient to take care of basic necessity of your dependents e.g. commercial property on rent, dividends paying shares, stake in some venture, royalty rights etc
- A business / employment opportunity so that your family members can earn on their own and do not rely on insurance money alone
- An un-encumbered house to live in
- A good medical heath policy
- A will
Having said this, I would like to qualify that my opinion may differ from various experts’ advice and you are well advised to use your judgment. Extending the logic as listed above, if you feel that you have fulfilled your duty by implementing the items listed above then you need not worry about life insurance cover. You can read the following for information only.
however, if you are reading this after realizing that your financial plan so far does NOT cover items listed above then you may require a life insurance cover. So please read on and if possible implement as well.
Views on Life Insurance
(1) Start with a pure term cover as soon as you start earning for others or you know that in next 1 or 2 years who will have dependents.
(2) Don’t consider the premium you are paying for pure term policy as investments. Assume that you are building a trust for your family’s future and you will not be able to utilize the receipts from this trust. Exactly same as planting a tree knowing fully that the fruits can’t be enjoyed by you.
(3) Take cover for each earning member in the family.
(4) Split the insurance covered required into (a) bare minimum cover and (b) good to have cover. Start with 1 or 2 policies covering the bare minimum amount. The good to have cover can be taken care later once you have good balance of savings / assets vs. insurance cover.
(5) Calculate what is your life worth for deciding the exact amount of cover. (You may refer various articles on the internet for this. Try to search internet using key words Income Replacement method, Human Value method etc).
(6) Make sure that the amount which you have calculated accounts for following:
- Money which can give your family a regular monthly income (assuming that insurance amount is invested in safe fixed deposits).
- Some scope to cover future debts / expenses.
- Some money for emergency.
(8) Factor in your family members’ income and income from assets before deciding the insurance cover. (Read as decrease cover requirement to account for this income).
(9) Don’t under insure once you are convinced about the need and amount of insurance cover required. Under insurance is similar to taking no insurance at all.
(10) Take separate / earmarked policy when you take loans for essential assets (e.g. house in which you live, first car / vehicle / essential house hold assets). You may stop paying the premiums / or cancel the policy once the loan is fully paid.
(11) While taking insurance disclose everything truthfully to the insurance company including your habits and medical history etc.
(12) Split your cover with 2 - 3 insurance companies. Just like you bank with 2 -3 banks to spread the risk.
(13) Do share the details of insurance policies with family members. Ideally include this information in your will.
(14) Pay premiums regularly.
(15) Relax.
good article
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