I’ll try to keep the term insurance buying guide simple and less boring. For that, you have to trust me. There are only four simple rules.
- Never buy limited pay insurance. Company may offer even 50% discount insurance if you are ready to pay for 10 years or 7 years. Trust me, its just a gimmick. You are not gaining by paying more for 10years. Company is gaining more. If I own a company I will do the same and ensure people buy only limited pay.
- Return of premium policies are also not for your profit. Zero cost term insurance doesn’t exist. You pay the extra money to return your premium at the end. That’s the most stupid decision. Then there is no use of taking term insurance. It becomes an endowment policy again which comes with a maturity benefit. And that extra premium you are paying generates 5%-6% return and finally is returned back to you.
- Amount of insurance should be 10-20 times your annual income. Due to inflation, we suggest you take 20 times your annual income. However, the minimum should be 10 times. If you earn 5 lakhs p.a. then it’s suggested you take insurance of a minimum of 50 lakhs. However, 20 times or 1 Crore is the ideal value. If you think premium of 1 Crore is too much then you can opt for something like regular payout option. You need to ensure 10t times i.e. 50 lakhs is paid out directly and remaining 50 as regular monthly payout.
- Duration of insurance should be equal to the period which you think you will have liabilities. If you think you will be working in your 70s and will have dependent kids or someone on you then yes you should take till your 70s, else your insurance should end when dependency on you ends. Suppose you are set to retire in 60years but you are filthy rich and there are no dependents then just don’t pay further.
Well if you still find it difficult to trust me then try this logic and you will be in profits for sure.
For a 30year old a policy of 1Cr for 30years will cost around 8000/- -10000/- p.a. or around 800p.m. Now I understand your problem is, you will be saying how you will pay 800 per month after 20 years maybe when you don’t have a job. Well let me put it other way
a> Suppose you manage to save about 1.5 lakh and create an FD that pays 6% then you would be able to pay that cost with just your interest and still you have your capital with you. Yes if you think 1.5lakh is big to create an FD for 1lakh and use that to pay for your term insurance premium. You might be short of 200 – 300 per month and you can pay that from your pocket. Just imagine what that 300 will be after 30 years.
b> Another option is to check premium of both the case, limited pay and regular pay. Now buy a regular pay policy and put the difference amount (limited – regular) in a SIP for the same number of years. After your limited payment term is over start paying your premium by withdrawing from your SIP. You will still be in profit and you don’t need to spend that much money.
c> Similar thing you can do with the return of premium case also and keep the excess premium in SIP. You will be still in profits.
Trust me, you won’t regret my advice in either case you live or die before or after the term insurance policy term. Yes you should buy term insurance as there is no way the insurer will reject your claim if you paid for at least 3 years. And yes even suicides are covered. 😛