Last Sunday, my friend Vivek dropped in to discuss his insurance requirements.
I have known him for almost 20 years now and over the years I have always found him to be well-informed, intelligent and disciplined about his personal finances.
At the start, I was delighted... and naturally so... when he inquired about term insurance policies.
He had a very clear understanding that he would be a loser — in terms of returns, convenience and flexibility — if he combined investment with his insurance needs.
Therefore, he had already discarded his agent's advice to buy endowment, moneyback or the ULIP type of plans.
However, as our talks progressed I realized that, like many Indians, he had certain deeply ingrained notions about insurance that are inherently wrong.
Vivek runs a established business. He inherited it from his father, who had set up the same many years ago. In fact, with his son Aakash too recently joining him after completing his graduation, the business enters the 3rd generation.
A few more details about Vivek before we discuss his 'wrong' impressions about insurance... he turned 52 last month; he has no other child and hence he has, practically speaking, no further liabilities; and he doesn't have any debts too.
Logically speaking, therefore, he doesn't need insurance at all... not even term insurance.
His family will not suffer any financial difficulties if something untoward happened to him. His son would continue to manage the business and the inflow of income would not be affected.
When I explained him these points, he understood the logic.
But emotionally he felt as if something was amiss:
What if the business suffered a setback?
The family is quite well-off and has sufficient wealth in terms of properties, gold, mutual funds, fixed deposits, etc. So I countered that even if the business failed, their existing corpus would be more than sufficient for the family to continue living a very comfortable life.
A cover of even say Rs.1 crore won't make much difference to his family's financial well-being.
Hence, for this reason too, he did not need insurance.
There was another point that disturbed me:
Vivek had come to me thinking that he would take a 18-year cover, till the age of 70.
In fact, many people write to me that they want to be insured till 70/75.
My answer to this is that you are going to work and earn money till say 60. If something happens to you after 60, the financial impact on the family is going to be Nil. As such, by taking a policy beyond 60, you are basically protecting NOTHING. The premium that you pay will be a simple waste of money. Effectively speaking,you are betting on your death.
This is what I argued with Vivek that, even if for the moment we assumed that he needed an insurance cover, it should be till 60 only.
These, and many such deep-rooted misconceptions, are the cause of financial misery that many people suffer from.
Hope they learn from this post and the vast knowledge available for free on the internet that Thou shall NOT BUY insurance if...
I have known him for almost 20 years now and over the years I have always found him to be well-informed, intelligent and disciplined about his personal finances.
At the start, I was delighted... and naturally so... when he inquired about term insurance policies.
He had a very clear understanding that he would be a loser — in terms of returns, convenience and flexibility — if he combined investment with his insurance needs.
Therefore, he had already discarded his agent's advice to buy endowment, moneyback or the ULIP type of plans.
However, as our talks progressed I realized that, like many Indians, he had certain deeply ingrained notions about insurance that are inherently wrong.
Vivek runs a established business. He inherited it from his father, who had set up the same many years ago. In fact, with his son Aakash too recently joining him after completing his graduation, the business enters the 3rd generation.
A few more details about Vivek before we discuss his 'wrong' impressions about insurance... he turned 52 last month; he has no other child and hence he has, practically speaking, no further liabilities; and he doesn't have any debts too.
Logically speaking, therefore, he doesn't need insurance at all... not even term insurance.
His family will not suffer any financial difficulties if something untoward happened to him. His son would continue to manage the business and the inflow of income would not be affected.
When I explained him these points, he understood the logic.
But emotionally he felt as if something was amiss:
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| Are you seeing problems where none exist? |
What if the business suffered a setback?
The family is quite well-off and has sufficient wealth in terms of properties, gold, mutual funds, fixed deposits, etc. So I countered that even if the business failed, their existing corpus would be more than sufficient for the family to continue living a very comfortable life.
A cover of even say Rs.1 crore won't make much difference to his family's financial well-being.
Hence, for this reason too, he did not need insurance.
There was another point that disturbed me:
Vivek had come to me thinking that he would take a 18-year cover, till the age of 70.
In fact, many people write to me that they want to be insured till 70/75.
My answer to this is that you are going to work and earn money till say 60. If something happens to you after 60, the financial impact on the family is going to be Nil. As such, by taking a policy beyond 60, you are basically protecting NOTHING. The premium that you pay will be a simple waste of money. Effectively speaking,you are betting on your death.
This is what I argued with Vivek that, even if for the moment we assumed that he needed an insurance cover, it should be till 60 only.
These, and many such deep-rooted misconceptions, are the cause of financial misery that many people suffer from.
Hope they learn from this post and the vast knowledge available for free on the internet that Thou shall NOT BUY insurance if...
