Tarun, a friend of mine, works in an MNC and is doing very well for himself. He has a loving wife and two kids- both in primary school. One dayTarun came up to me and asked me for my advice on his financial portfolio as I am the only guy amongst our college friends who is from a Finance background.
I was in complete shock when he started taking me through his financial portfolio.
I stopped him mid-way and asked- you have health and motor insurance but you don’t have life insuranceIJ What kind of thinking is thisIJ
He looked equally shocked and said but I do have life insurance, I just told you about it.
That is when I realised that Tarun made the same mistake that a lot of Indians do when they think about life Insurance. Tarun thought he was covered under his dad’s Endowment plan and that it would be sufficient for his family.
This is a grave misjudgement.
I will tell you what I told Tarun that day. And let me explain this with an example. At the time of our discussion, Tarun was 30 years old and was earning around 1 lakh a month. His wife had left her career for some time to take care of the kids. He had savings of about 10 lakhs and had his own house.
If something were to happen to him over the next few years, the family’s only source of income would no longer exist. Also, the family’s long term expenditure including children’s education, daily expenses, wedding etc. would roughly come to between 2- 3.5 crore.
How would an endowment plan of Rs. 1 lakh and saving of Rs 10 lakh take care of that expenseIJ What would his family’s future look like with no safety netIJ
Now you must be wondering- what is the solution to thisIJ
A term plan is the solution to this!
A term plan is different from an endowment life insurance plan. The purpose of a term insurance policy is to protect your family financially, in case of an unfortunate event. As the name suggests, it applies for a stipulated period of time or a specified term. In case you are no longer around due to an unfortunate event, this policy will provide complete financial coverage to your family in the form of a huge sum assured which is an amount that will be paid to your family members. So all you have to do is simply make sure that the term plan covers all the years when your family could be financially vulnerable.For a monthly premium as low as Rs 600 a month you can get your family a cover of Rs 1 Crore.
As compared to this, an Endowment policy,with a premium of Rs 2500 a month, will get you a cover of only Rs 3 lakh. This means that in case something was to happen to you, your family will only get a pay-out of Rs 3 lakh. This amount is definitely not enough financial coverage for your family.
In very simple words, a term plan is the most fundamental form of life insurance that isa must-have for anyone whose family members depend on them financially because it makes sure that your family never falls short of anything.
Tarun purchased a term plan on that day itself and if you don’t have a term plan yet, I suggest you do the same right now!