DOES INSURANCE COVER YOUR RISK?

Human being though generally rational in their behavior are known to take irrational decisions in life, even in matters which affect their near and dear ones. One such area is life insurance.

Life insurance is logically meant to cover the risk to the life of a bread earner which will affect the the family finances adversely and add to the emotional loss due to death of a near and dear one with dependents. This is more severe when the death is at an early age when family and children are fully dependent on his or her income for their day to day living and survival. Nuclear families make matters worse.

Dealing and interacting with many I find that most do not have adequate risk covering insurance. On the contrary their savings are eroded and locked in low growth endowment policies with high premiums.

Same people who buy a fresh car insurance or renew it every year and feel lucky if they had a year of accident free car use, don’t apply the same rational to their life which is much more precious for the family and risk too is high.

Most people are confident and rightly so, that if they are lucky to be alive they will be able to manage to earn and look after their families but fall prey and don’t take the right insurance which is pure term insurance covering complete or maximum risk in case of death due to any accident or sudden health issues.

What should be the right pure term policy cover ? As a thumb rule the sum assured should generate interest income equal to the salary or income of the individual. As an example ideal pure term policy assuming 6% interest rate for a person earning 50 thousand per month should have a pure term policy of 1 crore(10 million). Depending on the age the premium is affordable as such policies have low premiums and in case some one finds it difficult he can go for a lesser amount but interest earned must cover at least the monthly family expenditure.

In most cases I find people paying more premiums and yet having very low risk cover. The reasons are faulty marketing of insurance , lack of financial awareness and getting fooled by the lure of getting some money back in the long term and of course the commissions on endowment policies are much more than the term policies. Lack of financial awareness and education is the root cause.

Having got into this situation which is not in the best interest of the family ,we will discuss how to get out of it and have the risk better covered in the next week’s blog  

Moneymonk

www.moneymonk.me