ALL ABOUT INSURANCE

 So, yes today we are going to know about insurance, there are a lot of insurance people usually take for example life insurance, health insurance, vehicle insurance, property insurance, liability insurance, and a lot more. These insurances have a lot of sub-divisions as well. So, let’s understand how it works! We all know the simple meaning of insurance if something happens so we will get financial cover or protection depending on the plans we have chosen.

         

There are mainly two types of insurance that people usually take, the first one is life insurance & the second one is health insurance. But at the same time, there are a lot of people who usually don’t have any of them. Some people think they don’t need any, it can be risky! In today’s article, I will be talking about why it is important, and what kinds of insurance are there in the market? what are the benefits of having insurance? why we shouldn’t consider insurance as our investment, how it can bring happiness & satisfaction in our life!!

 

WHY INSURANCE IS IMPORTANT?

: insurance is important because it gives us the satisfaction that if something happens to us then our nominee will get an ‘x’ amount, and our family will not have to suffer from the kind of lifestyle they have been living, it wouldn’t affect their life a lot. These days if people buy a phone, then they definitely would buy a cover, but when it comes to covering our life so, hardly you would see people who have the insurance, the right insurance by the way! Because some people see insurance as an investment, they make insurance & expect a return from that, I will talk about that later. Now I am talking about why it is so important to have at least the main two (life & health) insurance.

 For example, if something happens with us as an earning member of our family, then suddenly their lifestyle wouldn’t remain as same as it used to look like before & that is the obvious thing. So, what if we have a cover plan for that, so, we wouldn’t have that worry if something happens to us, what would happen with their life! Definitely, we wouldn’t ever want something like that to happen with us but anything can happen! Maybe people wouldn’t want to think about their death or injury which nobody wants to happen with their life, but because it is the reality that we can’t predict the future, so, for once we could think that anything can happen & for that matter, we need financial protection for our family. And then insurance comes & plays its role. After that, the insurance company will give your family an ‘x’ amount which will be taking care of theirs. 

 

WHAT ARE THE KINDS OF INSURANCE ARE THERE IN THE MARKET?

 

As I mentioned earlier, there are a couple of insurances (life insurance, health insurance, vehicle insurance, property insurance, liability insurance) out there, they have their sub-divisions as well.  

 LIFE INSURANCE (LI):

 There are a couple of life insurance plans out there just like term LI, endowment LI, unit-linked insurance plans (ULIPS), whole LI, and a lot more but mainly people take the first three.

 

1] ENDOWMENT LIFE INSURANCE:  Endowment plans are amongst the most popular life insurance plans in India, people usually take this one because it provides two benefits together. When you pay off your premium, it divides into two parts, then one goes for your life cover and the other one goes for your investments. And in that way, you are paying the maximum premium. If you take this plan so, you are getting life coverage as well as your savings. In that way, we can protect our money just like FD (fixed deposit) for our retirement, children’s education, marriage, etc. In the period of the policy if something happens with the policyholder then the family member of the policyholder or the nominee will receive the amount (both life coverage & your savings as well) as a lump sum or on a monthly basis. Or in a case, the policyholder survives the period so he/she will receive only their investment amount. It sounds attractive that people give their money to an insurance company for a longer period of time and then after reaching a particular point, the person will get an ‘x’ amount. But it is not the best possible way to invest anyhow, I will talk about why we should not consider insurance as an investment option later.

 

2] UNIT LINKED LIFE INSURANCE (ULIPS): It is quite similar to the endowment plan because in that plan whatever the amount you pay as your premium will also divide into two parts & goes as your life cover and for your investments as well. But the difference between these two is, in endowment our money is safe like FD, you will get your return after completing your period of the policy but in ULIPS the portion of our money goes as our investment, it is not as safe as in endowment, because, in ULIPS, our money does some riskier investments like stocks, bonds, etc. but at the same time, it has the potential to generate a little bit more return than endowment. But still, there are some better places to invest your money. 

 

3] TERM LIFE INSURANCE: In the field of LI, that is the best possible insurance out there in the market, because in that insurance you will be paying a very lesser amount with the maximum coverage compared to endowment & ULIPS. For example, if we take 1 cr coverage in term LI so, it would hardly be around 10-15 k per year, but if we take the same plan in endowment or ULIPS, then our premium will be around 8-9x, but one thing we should keep in mind that in term insurance if something wouldn’t happen with us, we will not get anything out of the insurance company and in my opinion that is the real meaning of insurance. If something happens then we will be able to get out of the situation and if wouldn’t happen so, nothing can be better than that.

 

HEALTH INSURANCE: In the case of health insurance, there are also a few categories in that. Before taking health insurance there are a few things you need to care about such as a good cover, it is very very important, try to get a good cover for example 10-20 lac or probably more than that, think about that if you take 2-3 lac cover then it doesn’t simply make any sense to take an insurance for that. You can manage that small amount, try to get a cover more than 10 lac at least so if you would face a great injury you wouldn’t have to worry about a lot from the money perspective. Healthcare is the future, the kind of environment we live in, instead of taking care of our health we would have to face a lot of health-related issues in the future, a small injury might take you a few lacs of cost because these things are getting too expensive day by day. Think about a family who has been saving 10 lac rupees for over a decade and suddenly a medical urgency comes and all the money get vanished. That’s why insurance is important.

 

WHAT ARE THE BENEFITS OF HAVING AN INSURANCE?

There are multiple benefits you can get if you have insurance,

1)     If you have insurance then you will have a great tax benefit, based on section 80 C, that’s a great step taken by the government in order to motivate people to have insurance because death benefit payouts are generally tax-free.

2)     You would have a great cover against uncertainties and that is the most important thing in the whole topic, if you have insurance then you would have almost zero worries related to financial problems that might come after some uncertainties.

3)     If you have more insurance then the more benefits you will get, such as income replacement for years of lost salary, paying off the home mortgage, car loans, credit cards, student loans, etc.

4)     Life insurance sometimes offers other types of protection such as disability insurance to replace a portion of your salary if you are unable to work.

5)      If you take term life insurance, automatically your premium will be far less compares to endowment or ULIPS.

6)     If you have health insurance and in case you don’t claim in a particular year, so you are entitled to receive no claim bonus. This can be either in the form of a premium discount or addition to the sum assured amount.

WHY WE SHOULDN’T CONSIDER INSURANCE AS AN INVESTMENT -

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     By choosing term life insurance at an early age, for example, if our coverage is around 1 cr rupees, then we have to simply pay 700 (the exact number I don’t know but it is around 700 rupees) rupees per month, interesting right! We can get 1 cr life coverage by simply paying this small amount but as I said if we choose ULIPS or endowment then the amount would be drastically high. So, whenever it comes to taking life insurance then I think we should go with this term LI and the remaining money we can invest in other places like stocks, mutual funds, bonds, gold, a small fraction could go to the crypto world as well, etc. If you have a bit of awareness then you can generate far better return investing in these places rather than investing in these LIC products. 

 

and I am not saying anything to you, that is the truth, one day I was searching that how much a person has to pay if he would take 1 cr ULIPS plan, it has some time period by the way, it is up to you how long you want to carry, it is usually around 10-20 years, but I wasn’t getting my answer properly, so I called one of the policy selling call centers and they explained all the thing very clearly because I told them that I want to buy a ULIP investment plan otherwise they wouldn’t have told me these things, jokes apart but she said that if you want to take a 1 cr ULIP plan for 30 years then you have to pay 10000 rupees per month, means in a year 1.2 lac per year, it may look attractive to you that after 30 years you would have 1 cr rupees, but if you do calculation then you get to know that instead of choosing these types of plans you can actually make a far better profit in the long run if you simply invest in a passively managed index fund only.

Till now we have understood that insurance is important to our lives and if we take it at an early age between 25-30 then our premium will be far less than the people who are taking insurance in their 40s. We should have at least 2 insurance (life & health) and at the same time investments are also so important. So, if you want to play the game smartly then you have to apart these two things from each other, because if it goes together then definitely you will be losing your money. For example, if you make an endowment or ULIPS policy so, at the very start point around 15 percent amounts are taken by the broker as a brokerage fee, the rest of the journey is still remains, think for a moment if someone makes a 1 cr endowment policy then the first year the agent will get paid around 25-35 percent of the premium paid by the policyholder, the 2^nd year the percentage would come down a little bit and the third year the percentage will come down a little bit more and the journey remains the same. So, that’s why insurance is not the best place to invest our money, there are a bunch of other places to invest our money.

 

At last, I would say we should have insurance in order to be free from the tension of if something happens to us then what would happen with the other people who were dependent on us financially. So, insurance is a great product.  You just have to be aware before taking any insurance. Insurance is a simple thing you just need to understand the terms & conditions. What is covered & what is not covered! Some brokers try to explain it in a complicated way because they need commissions, until/unless they sell endowment or ULIPS, they would hardly have any profits! So, you can buy policies online directly instead of going through an offline broker.

CREDIT: Goes to Sandeep Maheshwari's this video https://youtu.be/1_3ROas99gY.

 if you want to know in details then you can check Ankur warikoo's this series on insurance : https://youtube.com/playlist?list=PLLbfvOX935JFYAHk4u4i9zI1oOyUNcbli..........

Thank you.