Insurance - "Haan Karna hai" But When???

Income, Investment and Insurance are the three important ‘I’s  to secure you and your family’s future, yet we discriminate among them. While we concentrate a lot on the income aspect as it affects your present as well, Investment gets a bit less attention and for the majority the Insurance part is completely ignored. While I said insurance I basically talk about Life Insurance. And in this post wherever Insurance is written it implies life insurance only.

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I have spoken to many people and the answer that I get is “Haan Yaar karna hai.” (Yes, it needs to be done.). It reflects that people are aware about the importance of Insurance but with many other important things that affect our present, we forget the most important need that may affect the future of our family.

The second problem is that the coverage is lesser than the requirement. I have seen many people who are having insurance where the sum assured is so nominal that it will not serve any purpose in case of requirement. Either these people had fallen into the trap of some insurance adviser who sold a product, which was higher on commission but less on benefits, or they had chosen a product primarily for investment. Sum assured is the value the nominee gets in case of mishappening to the person insured.

LIC is the largest insurance company in India

In India, around 80% of the people eligible are not insured and if I am not wrong there are more than 95% of the people whose coverage is less. Let me also confess that I also belonged to this 95% category of low on coverage, however I have spent last two weeks to get myself an insurance coverage which at least cover me to a fair extent, though as per my calculation it’s still a bit less.

After going though the cumbersome process of buying Insurance, it becomes my responsibility to spread the understanding I have acquired during the process. My write-up will not be comprehensive, covering all the aspects of insurance but it will have those necessary information which as a layman anybody should have.

In my next posts I will cover the basic types of life insurance and the things you should do while applying for insurance, in this post lets talk about a few points that we always ignore:

1. Insurance covers your life, so its actual benefits will come into the picture only when you are not there. Don’t you think you should be extra careful in every aspects of it?
2. Working and married females don’t get themselves insured. You ignore the fact that your expenditure including various installments at present is adjusted along with the income. In your absence, the income won’t be there but the expenditures will remain the same.
3. Insurance always features last of our priority list, but you should remember that the early birds always get something extra. In Life Insurance also, the early you do the insurance the less the premium would be. Suppose a person takes insurance at the age of 35, his yearly premium will be higher by around 50% in comparison to a person getting insurance at the age of 25. And remember that you will pay the increased premium for the entire tenure of the insurance. So get the insurance as soon as possible to save money, if not for any other reason.
4. There is one more reason to get insurance early. As we grow old we are susceptible to diseases. The insurance company underwrite the proposals based on your health profile, in case they find any issues they may increase the premium and worse they may even decline the proposal, if you have some serious complications. Note that now a days insurance companies specifically ask if any other company has ever denied you insurance, if the answer is yes, getting insurance from any company is difficult, very difficult. 
5. There is also distinction between those who consume tobacco and those who don’t. The premium for those who consume tobacco is higher by around 40%. Now suppose you smoke only 2 cigarettes a day which comes to around 700 cigarettes per year. Start adding around Rs. 2 to the cost of each cigarette as your premium will be higher by around Rs. 1500 to Rs. 2000/-. The difference will increase based on age and sum assured. Am I reducing the fun in smoking :):).
6. The biggest doubt in our mind is the amount of insurance coverage that should be taken. The thumb rule one should have is that the coverage needs to be around 20 to 25 times of the yearly expenditure you assume today that your family has to necessarily incur in case of your absence. In case of any home loan or other loans are outstanding you need to increase the insurance coverage accordingly. This is the minimum coverage one should have.

The bottom line of all this is that you should take insurance because it is as necessary as earning your monthly income, and secondly, it should be taken early in your life. Put insurance at the top of your priority list, instead of buying a gold pendent for your loved ones buy an Insurance and secure their future. 

Do remember that Life is uncertain and we are in such a world where we are living by moments.

The next question that will come to your mind is the type of insurance you should be taking. Read my next post Which Type of Insurance should I buy?, it will clarify many of your doubts.