There are two extremes when it comes to buying Life Insurance and there are quite a bit of people who are at both these ends. I know intelligent people who are at both these ends and it isn’t surprising I see a lot of such examples online in various forums. The two types of people are:
- Who think Life Insurance is the only safest form of investment in the whole wide world.
- Who think Life Insurance is needed only to claim the 80C tax benefits.
Insurance is the Best-est investment
The first category is brain-washed by the old LIC agents who get big, fat agent commissions whenever you pay your premiums. Their agents only sell them traditional policies, because the premium is higher and the agent gets more commissions. These people need to read more on how traditional insurance policies are one of the worst performing investments (I wouldn’t even call it an investment). But this post isn’t for them.
Insurance? I don’t need no Insurance
This post is for the people on the other extreme – those who think that Life Insurance is just a way to get tax benefits under the section 80C of Income Tax. They don’t understand the meaning of the two words “Life Insurance”.
I have a friend who on getting his job, immediately took a home loan and bought an apartment. When I asked him how much insurance he has taken, he said “Insurance? why would I need that? I already claim all my 80C from the PF and housing loan principal. I don’t need to invest anymore for 80C.” He thinks insurance under 80C is a way for the government to get more money from tax payers.
He has a pretty heavy liability in the form of a home loan and both his parents are dependant on him. When I asked what would happen incase he dies, he says that his sister would repay the loan or his parents would sell the apartment and live off the interest from that money.
What a dumb answer. His sister already has a home loan of her own and she has a family with kid for whom she needs to provide education. And his other idea of selling his house and living off that money? When they sell that house, most of the money will be used to repay the bank and they would get back a very small amount (maybe a few lakhs) and that money isn’t enough to earn interest for two people to live off, especially with the rising costs.
Do you need Life Insurance or not?
To know if you need Life Insurance or not, let me ask you a few set of questions here.
- Do you have parents who are dependant on your income?
- Are you married and you have a spouse who is dependant on your income?
- Or are you planning to ever get married in your life?
- Do you have kids? Or are you planning to have kids?
- Do you have any kind of liability – home loans, car loans, personal loans? And if you die does your dependants be burdened to repay these?
- Do you have any one else in your immediate family dependant on you for their living? like siblings?
If the answer to even one of the question is a “Yes”, then “Yes, you need life insurance”. If I need to slap you to get that into your brain, I don’t mind doing the honours.
If you answered “No” to every question, then you can skip your life insurance.
In other words, if you are going to be Forever Alone, then you don’t need life insurance.
If you die and no one’s financial life is going to be affected, then you can skip it.
If not even a single person is financially dependant on you, then you don’t need life insurance.
Number of people falling under the “No to all” category, especially young, salaried people or people with their own businesses will be less than 1%. And there is a high probability that you don’t fall under that category. So go ahead buy a online term insurance and make sure your dependants are not left in the dark when you are not there to support them.