In India, there is a lot of confusion about insurance being a form of investment. Your neighbourhood LIC auntie (who btw remembered exactly when you started a job) showed you the “investment” brochure, added some social pressure and you opened your bank for her.
Get this right now: Insurance is not an investment and it will never be.
Insurance comes in many flavours and for the most part I understood why they exist. But there was one variant that I thought was a little strange. Life insurance.
As a privileged kid, I did not understand why anyone would pay to get something back when you die. But now I do understand the concept of insuring your life.
However that doesn’t mean that I think everyone should insure their life. Get a life insurance only if you have financial dependants and if you think that they would need the money in your absence.
On the other hand:
- If your immediate family (partner, wife, parents, whomever is supposed to benefit from your life insurance) has a sizeable income.
- And if you have other investments (Gold, FD, Mutual Funds, Stock) that are enough to cover their expenses for the next ten or more years.
- And if they are financially literate. This is very important.
- And if you do not have any loans or EMI’s.
Then, I don’t think you need life insurance.
Personally I prefer to be more valuable when I am alive than dead. While I do want the best for my loved ones, I would rather invest in their financial literacy while I am here rather than plan for a payout once I am gone.
However, if you do get life insurance, please get a simple term insurance. Term insurance is the cheapest way to insure your life. And just get it online, not through an agent.
Term insurance is the kind of life insurance where you pay a fixed amount (called premium) for the “term”. If you die during the term, the beneficiary (the person you select to receive the funds when you die) will receive the funds. However, if you do not die, you do not get anything back at the end of the term.
I hope you do not die.
Think about it, we pay insurance for our cars and never get anything back. We hope we never have to use the insurance. Apply the same logic to life insurance.
Stay away from insurance plans that promise a return after a few years. Remember that when you insure, you are not looking for profit. Never purchase ULIPs!
If you do the math and compare term insurance premiums to other expensive insurance plans, you would be better off if you simply deposit the difference (i.e. expensive premium minus term insurance premium) in a bank fixed deposit.
Ask your neighbourhood auntie about term insurance, they will quickly discourage you. There is zero commission in term insurance for them.
Title was inspired by this comment.
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