Taking out insurance on your life is one of the top priorities in life. Just like
owning a house. But, over the last decade, its importance and purpose have
been made to look like something which they aren't. You need to accept one
thing here. Life insurance product is not a pure investment like your Fixed
deposit. The very fact that there are thousands of agents in the business of
Life insurance who are making a living out of their commission should tell you
that the percentage of commission is not negligible. Obviously, a portion of
the premium you pay goes to them. And the commission depends on the type
of insurance product that you buy. Naturally, the agent will try to push that
product or those products which will fetch him high commission. Once you buy,
you will be paying premium every month (or some such regular interval). The
longer the period, the higher the benefit for your agent! To attract you, his
argument will be to convince you that today's insurance product incorporates
investment in the stock market etc. That means, if the stock market is down
during the currency of your Insurance Policy, what you get back on maturity is
below average.
owning a house. But, over the last decade, its importance and purpose have
been made to look like something which they aren't. You need to accept one
thing here. Life insurance product is not a pure investment like your Fixed
deposit. The very fact that there are thousands of agents in the business of
Life insurance who are making a living out of their commission should tell you
that the percentage of commission is not negligible. Obviously, a portion of
the premium you pay goes to them. And the commission depends on the type
of insurance product that you buy. Naturally, the agent will try to push that
product or those products which will fetch him high commission. Once you buy,
you will be paying premium every month (or some such regular interval). The
longer the period, the higher the benefit for your agent! To attract you, his
argument will be to convince you that today's insurance product incorporates
investment in the stock market etc. That means, if the stock market is down
during the currency of your Insurance Policy, what you get back on maturity is
below average.
Please observe that the problem lies NOT with Life insurance, but in the way you are approached by the agent.
Since you are paying premia with your hard earned money, keep in mind the following points:
i. Life insurance is necessary - for the sake of your dear family. Which means, the longer the term of your Policy, the better for your family.
ii. Bifurcate your Investments and Life insurance. Take out an Insurance Policy, but invest your hard earned money elsewhere.
iii. Look for a pure insurance policy. The term of your Policies should be far beyond retirement age. If you have more than one Policy, stagger their maturity dates. For instance, if you have 3 Policies, you can have them maturing when you attain 62, 66 and 70. Since you'll be getting some retirement benefits, you can wait for 2 years after retirement for the first Policy to mature.
iv. If you take out only one Policy with a short/medium term, which matures say, when you're 50, you may not be able to take another Policy when the old Policy matures and then you will have NO life risk cover.
(see ( i ) above).
v. Do not take out a Policy only for the sake of tax exemption. And it should never be your last minute tax planning. No doubt, you do get some tax exemption - but, that's a bonus! If you need to invest only for tax exemption, there are other, much better, avenues. At the cost of repetition, remember that it is your hard earned money.
vi. A pure term life cover is the best. It covers life risk at the lowest cost.
Invest wisely!
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