Tag Archives: money management

A Duty of Care

Welcome everybody, today we are talking about ‘Duty’ [starts firing – gun shots everywhere], no no hold-on not ‘Call of Duty’, oh no!

Lets talk about your Duty towards your loved ones – ‘Insurance’, specifically ‘Life Insurance‘.

In Layman terms, Insurance is something people buy that protects themselves from losing money in case of an unfortunate event. Be it ‘Car Insurance’ that insures your car against any potential damage, or ‘Life Insurance’ that insures you that your nominee will be paid in case of your demise.

Like everything in life, it too comes with a cost, ‘Premium’ – an amount to be paid (often monthly). But that can be seen as a small price to be paid for the mental peace & financial security of your loved ones. Life insurance = financial security for nominees in case of death of policy holder and Financial security = fulfillment of the family’s financial needs.

Now Life Insurance are broadly of two types – Term Insurance & Endowment (if you wish to read more about other types of Insurance you can check the link here). Endowment is something where policy holder get a particular set amount on maturity, while Term Insurance is a pure Insurance policy where policy holders’ nominee gets a fixed amount on the unfortunate event of policy holders’ demise.

This is where it gets interesting no Insurance Agent advertises or sell you Term Insurance, while everyone will pitch in for an Endowment stating it to be an Investment / Saving Option. So are they right about it, or are they simply doing it for their cut aka commission? Well yes, its in their favor!, Endowment plans charge a hefty amount in premiums and a huge portion of it goes to insurance agents as commissions and administrative costs (read more here about things Agent never tell you)

Lets discuss about the benefits of Term Insurance over Endowment, why you may need one? and also I hope by the end of this blog post you will know Term Insurance is the only real Life Insurance.

1. Premium aka the priceIn Term Insurance you can get the same cover as Endowment at a much lower premium, for example – If you are a smoker male in your late 20s, you can get a cover of 1 crore by paying INR 1500 every month for 30 years. while you get the same cover of 1 crore if you pay over INR 10,000 every month for 30 years for an Endowment plan, around 7 times the price compared to Term insurance. Think it this way, you end up saving around 6 times the premium (i.e. 30 lacs in this case), if you go for a Term Insurance. Well yes, you won’t get anything on maturity if you are still alive but nevertheless its a life insurance it meant to be like that, why not invest the cash you saved on a better asset! Buying Term Insurance in above scenario saving around 8.5k per month, if you invest the same amount in Stock Market and get an average market return of 10% annually you can make around 2 crore, twice the amount you get on maturity from an Endowment plan. Isn’t it cool? That said I am not promoting one thing over the other, all I want to say don’t listen to a random agent or fake financial gurus be it offline or online, do your own due diligence before Investing/Insuring.

2. Sum assuredIn Term Insurance you get a sum assured way higher compared to an Endowment plan for the same amount of premium.  As a thumb rule, you are allowed to buy cover of up to 20 times your annual income (cover ranging from 10 lakh to 20 crore). Now, thing to keep in mind you will only be paid the promised amount in case of your death during the policy tenure (after all its a insurance against your life).

3. Features / payout options – Term Insurance provide you flexibility when it comes to the pay-out the nominee receives the sum assured in lump sum, equal installments or a combination on the death of the policy holder during the policy tenure. The policyholder has option to customize the payout based on their family needs. In an endowment plan, the payout is lump sum either on the death of the policyholder or as a maturity benefit on completion of the policy term.

Above are the major benefits, now when it comes to buying a Term plan there are certain things you need to take care of – Coverage, Policy Duration, Features of Plan, Premium Affordability to name a few. To know more about the same you may wish to read an article here or here.

Finally if you are wondering where to avail a plan, you can consider checking out policybazaar.com and you may probably need to do your own due diligence. In the end if you are left with the extra cash and considering to Invest read our blog post here, and follow us for more tips & tricks on how to Manage Money and Invest Wisely for Financial Freedom.

Thank you Readers