During my discussion about Term life Insurance, I am asked frequently, why not take it for very long term to cover the older ages also, say till age 75. It is obvious, why people think like that. And because most people think like that, it becomes opportunity for the Insurance Industry! Nowadays few companies have started offering term insurance policies that never expire…means life time (Age 100) cover!!! People think the probability of death is high during older ages than younger age and hence if they cover themselves during those ages, their nominees (children) will get benefited! It’s like passing on the inheritance / estate to next generation!!
I would say this thought process is both misuse and abuse of Insurance. Insurance is appropriate neither for passing on wealth (misuse) nor getting insurance cover when you don’t need it (abuse).
Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Actual / Primary Plan). B-Plan is for use when A-Plan for some reason doesn’t work or fails. So, obviously there can’t be B-Plan if there is no A-Plan in first place or if the A-Plan is successfully executed.
Let me elaborate to tell what I mean.
You have so many financial goals and responsibilities towards your family – Funding your Children’s education & career, Getting your daughter married, Owning a house for your family, Ensuring post retirement income for spouse (& yourself) etc. The A-Plan to achieve these goals is work, earn and save & invest. So, if you work for several long years or till your retirement, you are going to work / execute A-Plan. But, what if fate doesn’t allow that and some accident hits to leave you dead or disabled? Your future income will no more be available to the family. Then what about those goals? That’s where B-plan (Life Insurance and / or Personal Accident Insurance) kicks in ensures that the goals are still achieved.
Once you have worked enough number of years and achieved all your financial goals, your A-Plan is successfully executed. There will be very little or no adverse financial consequences, in case of your death / disability at that point of time. So, B-Plan (Life and Accident Insurance) is redundant or not required.
Today, many people, even with very basic financial literacy, understand life insurance is not a correct investment option. Buying life insurance as an investment is clear misuse of insurance. If you are still holding / paying premium for some life insurance policy thinking it’s an investment, then you are doing a too basic mistake.
I would say this thought process is both misuse and abuse of Insurance. Insurance is appropriate neither for passing on wealth (misuse) nor getting insurance cover when you don’t need it (abuse).
Firstly, an insurance (any kind of insurance) is always your B-Plan (Back-up Plan). There is a room for B-Plan only when you have A-Plan (Actual / Primary Plan). B-Plan is for use when A-Plan for some reason doesn’t work or fails. So, obviously there can’t be B-Plan if there is no A-Plan in first place or if the A-Plan is successfully executed.
Let me elaborate to tell what I mean.
You have so many financial goals and responsibilities towards your family – Funding your Children’s education & career, Getting your daughter married, Owning a house for your family, Ensuring post retirement income for spouse (& yourself) etc. The A-Plan to achieve these goals is work, earn and save & invest. So, if you work for several long years or till your retirement, you are going to work / execute A-Plan. But, what if fate doesn’t allow that and some accident hits to leave you dead or disabled? Your future income will no more be available to the family. Then what about those goals? That’s where B-plan (Life Insurance and / or Personal Accident Insurance) kicks in ensures that the goals are still achieved.
Once you have worked enough number of years and achieved all your financial goals, your A-Plan is successfully executed. There will be very little or no adverse financial consequences, in case of your death / disability at that point of time. So, B-Plan (Life and Accident Insurance) is redundant or not required.
Today, many people, even with very basic financial literacy, understand life insurance is not a correct investment option. Buying life insurance as an investment is clear misuse of insurance. If you are still holding / paying premium for some life insurance policy thinking it’s an investment, then you are doing a too basic mistake.
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