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Neha Dewan
22 Apr 2016 . 4 min read

With Thee, Forever!!


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“Three lakhs only,” tears rolled down her cheeks, as Nirupama, in her early thirties, read the cheque amount handed over by the insurance agent. She looked at their photograph mounted on the wall with the engraving, “With thee, forever!” She was blooming like a rose when they entered their home last year that cost them 70 lakhs. Rahul had said, “Let us insure our home loan, you would be secure in case..” She had interrupted with an irritated voice, “Let us celebrate the moment!”  

Mona, her seven year old daughter shook her, “Mom, somebody’s at the door.” It was Prabhat, the HR guy from Rahul’s office. He handed her another cheque of 45 lakhs. Rahul was insured for three years’ salary. She accepted with a heavy heart. She had never seen such a big amount in her life. But her liabilities were bigger. She had another seven lakhs in Rahuls’s PPF and five lakhs in PF. Her new job could barely take care of the family’s expenditure. She could not save the house. An eight lakhs deficit glared at her. They paid only two lakhs of the principal in the last two years.

Do you think that they could avert the financial crunch that Nirupama is going through on Rahul’s untimely demise?

Yes.

But how?

They overlooked the insurance component in their financial planning since they -

  • Ignored term plans that come handy in case of an eventuality
  • Assumed it as an investment offering lower returns and used it only to avail tax benefit
  • Did not insure their housing loan

The purpose of insurance is not to increase your wealth. Rather, it is to cover the uncertainty factor in your life. 

But then, how do you decide how much cover you need?

  • Consider the inflation and risk - Assure a sum ten times higher than your annual income
  • Assess your debts and liabilities – Number of dependents on your income, loans, child’s education and marriage, ailing parents, pension planning, expenditure on health care covering the common diseases specific to you, such as, breast cancer and cervical cancer.
  • Gauge your ability to pay the premiums comfortably

So, how do you decide what plan you should choose?

Here is a comparison of the basic insurance plans.

Insurance plan

Feature

Premium

Profit component

Pay-out

 

 

Term plan

Pure risk cover

Low

No

Only on demise of the policyholder

 

 

Endowment plan

Risk cover + savings

High

Yes (4-7 %)

Either case – Maturity or demise

 

 

Unit-linked insurance plans (ULIPs)

Life insurance + Investment

Net Asset Value (NAV) – Price per insurance unit that varies on daily basis

Yes (Market linked)

Maturity/ Demise

 

 

Whole life policy

Valid throughout life

Regular until death

No

Demise

 

 

 

However, carry out these cross-checks before buying a plan

  • Have a look at the claim settlement ratio of the insurer
  • Understand the risk component, for example, in case of ULIPs
  • Enquire about the additional benefits like accident cover or critical illness
  • Compare the plans offered by different players
  • Carefully read, and, understand the terms and conditions of the policy

Insurance is not a one-time rigid decision. Reassess your needs from time to time, insure and financially secure your loved ones.

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Neha Dewan
An environmentalist by training, I worked in the corporate sector during the initial years to find a confluence between the industries and nature. At present, I teach Biology online to higher secondary students. I love exploring the sabbatical blues faced by women like me and how the magnanimous internet could help us.

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