I am presently 30 years old, my current income is 3 lakh , I have insurance of Rs.5 lakh. Is my insurance adequate?
India is a country where 90% people see insurance as an investment and only 10% people see insurance as a tool for protection.
I say if you have a family or dependents in life you need a life cover. Most of our financial decisions come from Fear, Now; I don’t want you to buy insurance cover inside of any fear but as your responsibility towards your loved ones.
Looking at your current insurance cover you need to get that having Life cover is one thing and having adequate life cover is different. People say financial sector is complex when it comes to buying insurance, no it is actually not if you are opting for a term plan, each insurance company has a simple term plan in their kitty.
Insurance need can be found out by many ways such as Human Life Value, Need Based Insurance method, Percentage Method. Assumptions to identify your insurance need:
| Method adopted | Human Life Value |
| AGE | 30 yrs |
| Years to retirement | 30 yrs |
| Current income | 3 00,000 |
| Monthly Expense | 18000 pm |
| Your Income is growing @ | 8% |
| Returns expected if insurance money is invested | 9.5% |
| Any liability (Home Loan ,Car Loan) | In your case No |
| Other goals like children marriage or education | In your case No |
| Insurance required | 40,00,000 |
| Available Insurance | 500,000 |
| Additional Insurance required | 35,00,000 |
Now looking at your insurance requirement we are assuming that you have no other liabilities, no children.
At the age of 30 buying term assurance for 30 years is a good bet. Hence there is no need to worry till the time you reach 60 and that’s your retirement age.
Several times people do have question in their mind that what if I die after my term assurance gets over. This is indeed a good question. Term assurance should be taken in such a way so that your entire earning life is covered. And once you are retired priority is not insurance but its income stream.
Normal endowment plans can be taken up if your psyche is not supporting the concept of term assurance but in that case be ready to pay better premiums because endowment plans are the combination of a term assurance and pure endowment assurance. (If possible avoid them)
For the contemporary issues of having adequate insurance cannot be met with normal endowments so our suggestion is go ahead with a term assurance.
Let’s have a peek at Term Plans?
As an investor these are plain vanilla insurance policies (you don’t get anything back, zero return policies). If you don’t want to make a huge one-time payment, go for this option You can pay the premium every year till the end of the insurance term.
Let’s take the same example as above but for a 30-year policy.
| Insurance Company | Product | Approximate annual premium |
| Aegon Religare | Level Term Plan | Rs 9,690 |
| ICICIPrulife | Pure Protect | Rs 8,879 |
| Aviva Life Insurance | Life Shield | Rs. 10,037 |
In a Nutshell:
- Never see insurance as an investment vehicle.
- Always go for a pure term plan, as your responsibility towards family.
- While buying insurance cover be honest with the insurance company, never hide facts.
- Incorporate inflation, Liabilities and other key goals while calculating your insurance need.
- Read the Terms and conditions before signing any document of any insurance company.
- If any riders are attached, have understanding about it.
- Once the insurance in bought, create a master file and keep it at a place where your family can find it easily.
- Buy the term plan online , which saves money.
PVS (Prashant V Shah) 