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News & Views

Monday, Jun 22, 2015

Insurance to ease burden of liabilities for newly weds

[Source : The Economic Times]

Chandra had just returned from a trip to the serene beaches of Mauritius with the freshest addition to his family, Sandhya. But Chandra's colleague Subodh noticed Chandra wasn't the same ever since he was back from his wedding retreat. The calm of the beaches had started reflecting in him too.

After a little digging Subodh found the cause of worry. Chandra was panicking at the thought of growing dependents. "Ailing parents, wife and may be kids few years down the line. I am the sole bread winner of the family. What if I am unable to meet their needs?" Chandra spelt it out.

Tapping his fingers on the keyboard, Subodh pulled Chandra's chair closer. A presentation that a life insurance company had made in their office, while Chandra was away, popped up on the screen. "Term life insurance is the answer to your worries Chandra," Subodh tried to calm his friend.

"This would help you take care of all the needs of the family, if anything untoward happens to you. An amount you select as the sum assured, based on your needs, would be handed over to your family when you aren't around," explained Subodh, who had diligently been noting down important points during the term-insurance presentation.

Chandra was perplexed again. "Subodh instead of easing my worries you are adding to them. How can I zero down on the sum assured?"

Subodh showed him the slide, which stated that a minimum of 10 times the annual salary should be opted for. "But they mentioned that a policy buyer must also take into account his liabilities. So, if you have a home loan or car loan then you would have to add the outstanding amount to the sum assured figure. Assets such as gold, property can help you minimize the sum assured too."

"Perfect! Chandra you beat any nerve-soother drink available in the market. I can't tell you how relieved I am. Let me call up my uncle who is an insurance advisor."

Before Chandra could pick up his phone, Subodh interrupted, "Relax Chandra! There is a better way to buy available. Get on to your computer and opt for online term insurance. This would help you save 30-40% on the premium."

Chandra stopped Subodh mid-way, "But why are premiums for online term insurance plans so cheap?"

"Well, the insurance company informed us that the net-savy individuals are more likely to purchase online and they believe that these individuals are financially secure and lead a healthy lifestyle, may even have better hospital network available. Another major reason is that when you log-online, you aren't going through an advisor, thus eliminating the commission involved."

Satisfied with the explanation, Chandra immediately rushed to his computer and started keying in details to get the premium amount. He checked with Subodh on the "Required term". There were options available such as 20, 25, 30 and 35 years.

He served a quick reply, "You are in your 30s now and you should select a term which would go a little ahead of your planned retirement age. So, 30 should be ideal if you plan to retire by 60."

After entering the personal details Chandra was again at a point where he couldn't have moved forward without Subodh's help. He stopped him from heading for lunch and questioned, "They are offering options wherein, my family can either get a one-shot lumpsum or a monthly payment for 20 years. Which one should I opt for?"

"That's a tricky one. My friend, you missed out on one more option at the end - Partial sum assured as lump-sum and balance as monthly income. I think this would help you family meet the immediate high value needs and then keep the income cushion intact with monthly payments," Subodh said hinting at his yearning stomach and rushed for the canteen.

Stubborn that he was, Chandra pleaded, "The last doubt - Should I take the term insurance with return of premium option? I mean what if I don't die even after I turn 60-year-old, won't my premium paid over all the years be wasted?"

Walking toward the canteen backways, Subodh said, "Well that would just build on your premium amount. Be happy if your life for your family as money cannot replace your personal presence. By then you would have even gotten rid of most responsibilities."

With a wide smile Chandra made an offer for dessert. "I owe you a bounty full of rossogullas buddy."

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