Do you get harassed by callers selling insurance?
Do you need insurance?
Do you have Life Insurance or Health Insurance or Car Insurance or Home Insurance etc.?
If answer is YES to any of the above mentioned questions, then you need to read this article. Because this will help you to understand how a car or home insurance works.
You pay certain premium year after year, and if something goes wrong you get paid, but either ways the premium’s gone. This is what is supposed to happen. You insure your car or house against damage, and get funds to replace your monetary loss – this is the service provided by Insurance companies. Similarly if you get your life insured through a Life Insurance, then in event of your unfortunate death your family/nominee will be entitled to the sum assured. This will not fill the emotional loss but will provide the financial support created by loss of your income. Also separate insurance packages (term insurance) are available to cover any long term loans you may have in your name (to ensure your family is not burdened with repayment of loan along with loosing you). To assist in calculation of appropriate amount for the insurance policies:
is available on site.
Let us take an example: Supposing your are in your early thirties and your monthly expenses amount to Rs 50,000 a month + annual holidays + special spends would amount to about Rs 2 lakh a year. Thus your yearly expense would be about Rs 8 lakh. If you die now and your family continues to have the same expenses at 6% inflation for the next 30 years, they will need 7.2 crores if they have no other income.
You might wonder that how would you amass such a huge some! But relax. When you have 6% inflation, the 7.2 crores of 30 years later is worth just 1.25 crores of today’s money. In fact, the Rs 50,000 you spend today will be equivalent to spending Rs 46 lakh then.
Thus if you insure your life, the money your family will receive is a ‘corpus’, along with your savings. That corpus will earn some return – say, 8% pre-tax – when invested in safe avenues. If you calculate the amount you need based on this return and the corpus going to zero, you’ll need about 2 crores for your family to survive thirty years.
Using the above mentioned calculator you can Calculate Retirement Corpus. Now, continuing on our above example your retirement corpus should be around Rs 2 crores. Yes this sounds like a lot but this does not mean that you would be paying 20 lakh as premium each year!
A ULIP or insurance plans where you put premium and get the money back is an investment plan and not pure insurance. If you buy a ‘pure term’ plan – a plan insurance agent generally doesn’t want to sell you because it is, cheap – you pay substantially lower sums of money. But, like your car or home insurance, you don’t get your premium back. Anything where your premium is returned is an investment. So don’t confuse insurance and investment.
For your age, it is advisable that you should get term insurance for Rs 350 per lakh, so a 25-year, 2-crore policy will cost you Rs. 70,000 per year. That works out to be just Rs 6,000 per month.
The premium is tax-deductible, but under section 80 C, where many other exemptions apply under a single 1 lakh limit, you may not fully benefit.
There is one more option – you could buy four term policies of Rs 50 lakh each. As you save money, your savings go up so the insurance needs come down. So you simply stop paying one of the policies every time your savings go up by 50 lakh. There is no “penalty” for stopping term policies, just stop making annual payments, simple.
It might be useful to club insurance and investment together but these insurers charge hefty commissions on their investment products (which may just come down due to the fiasco over Ulip controversy), and provide extremely low insurance covers for the amount paid.
Also we at www.bimadeals.com help you pick and choose insurance by choice and not by chance from insurers registered with IRDA (you can even verify the claim statistic at www.irdaindia.org) for best insurance deal.
There is no tax on insurance money received in India, so older people should also buy insurance – although it’s costly at their age – to transfer money to their heirs tax-free, and also to reduce hassles of validating a will. Especially investing in a Health Insurance is a must. Not only is it useful for them, you get a tax benefit on the premium too.
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