Term Insurance – Life is insured for the term period. If the insured dies with in this period, the nominee gets the insured amount. If the insured survives, there is no survival benefit. Generally extremely cheap compared to normal Life Insurance.
Normal Life Insurance – Life is insured for the period. Upon survival of the term period, the insured gets the survival benefit. But extremely costly compared to Term Insurance.
One big problem with Insurance is the problem of people treating Insurance as an INVESTMENT. Let us see the issue with an illustration.
A simple insurance for 4 Lakhs (4,00,000) over 20 years, premium costs around 20K. Extrapolating this, a 1 million (10 Lakhs) cover, costs around 50K per annum as premium. Now think, is 10 Lakhs, good enough to even cover your family expenses for 3 years?
A term insurance, depending on your age and depending whether you smoke/drink, offers huge coverage at significantly lower cost. So a 1 Crore (10 Million) coverage is got for as little as 25K a year. Its strongly recommended to have 10-15 times your gross earnings, as a term cover for yourself.
In short, the points to be noted are –
1. Separate Life Cover requirement from Investment.
2. Buy a cheap term insurance cover
3. Invest the rest of the money on Mutual funds or Stocks or investment asset of your choice.
The reason I say this is because:
1. Overall cost of taking huge term insurance is cheaper. (For ex: 1 Crore cover in Term Insurance is possible with 15-20K per year, just not possible in normal Life Insurance)
2. As investment product, Life Insurance always lags Equities over longer period of time.
But why should we buy term insurance early?
- Cheaper to buy it early.
- Its easier to get huge cover when you are healthy
- Cover during shifting of jobs? Have yourself covered during shifting of jobs too.
