Life Insurance Jugglery - II

You must have heard the terms ‘Human Life Value’ (HLV) and must have been scared to death by insurance agents about how much risk you have and how much insurance you should take. There have been very popular advertisements on TV which show how everybody needs insurance, It portrays, “I don’t need Insurance” and then the ‘don’t’ word gets dropped off due to accident, fire or something and the sentence is re-phrased to “I need Insurance”. Remember that? While the intent and idea both are brilliant and true, nobody must have ever told you, “You don’t need Insurance” and if you thought so, you would be thought of as a crazy guy without the knowledge of the present times!!

So, do you need insurance? If yes, how much? You need to ask yourself these questions really hard because it is after all your hard earned money.

Let me show you some common decisions one has to make while buying Insurance policies.

1. Getting an insurance policy for a small child.
   Now this can be seen as a very prudent step for the parents, it actually overlooks a very important fact. A child does not have financial liability. There is no loan outstanding for him/her. Nobody is financially depended on the child. In an unfortunate event of the child’s demise, there aren’t going to be financial crisis. It’s going to be a great emotional loss, but not a financial loss. This argument has just one flaw. In an Indian society, a child may be seen as a financial future as well. If that is the reason (without going into the ethical part of it), then may be the child does need insurance. But this is rarely a thought for the parents. It is more to do with love and care for the child rather than future economic benefits.
2. Lessening your cover because you tried to get a ‘return’ on your investment.
   If you take Insurance policy because of your tax consideration, you probably did not think whether the Insurance is enough for you. You thought you need say 25L Insurance but the Investment + Insurance sort of a deal costs you a whooping amount greater than 70-80K per year. So you decide to take a policy of just 5L. Did this solve your purpose? It didn’t!! A term policy would have cost much lesser.
3. Too less insurance.
   The amount you are covered for should cover your immediate liabilities as well as long term liabilities which may include all types of loans, average credit card bills, maintenance costs for your car, and house for a period of time, education costs of your children, and living expenses for people who are dependent on you etc. You need to take a call on the future value of all these liabilities and decide on an amount of cover you need. Then pay the premium for the same and forget about it. As said earlier, a term policy would be best.
4. Getting insurance at the wrong stage of life.
   Say, you and your wife both are earning, your parents are also not financially dependent on you. You do not have any big loans on yourself, you do not have children. Do you still need insurance? I don’t think so. Insurance should be there only if there is a financial liability which you have and it would be jeopardized in the case of your death. It’s as simple as that. Some people may be of an opinion that in the event of death, all future earnings extrapolated until retirement should go to my family. That is how HLV is calculated. While this is a valid enough thought, you need to think really hard whether you really support this thought. I do not.
   
   
   So, analyze, think, and decide. It’s after all, your money boss!!