Wednesday, February 23, 2011

Why people dont like Term Insurance and why they are wrong

Why people don't like Term Insurance is the question , The answer is simple, because you don't get anything if you survive the whole tenure and hence the amount paid as premium is wasted , this is claimed by millions . Fair enough . The first thing is , these people do not understand or appreciate the Importance of Life Insurance . Now lets see this situation from a different angle . Assume you get the money at the end in your Term Insurance . Lets see a case study of a general Family . How does a family look like .

Manish is 28 yrs old and got recently married (oops!!) . He earn close to 40,000 per month . His monthly expenses is around Rs 25,000 overall and he saves 15,000 per month (heh) . He also have his parents dependent on him financially . He is 30 yrs away from his retirement . He calculated his Insurance Requirement and it was close to 50-60 lacs minimum . Lets take it as 50 lacs for simplicity for now .  

Analysis of Case Study

Now is the fun part , his current monthly Expenses are close to 25k, How what will it be his monthly Expenses when he retires after 30 yrs ? So the average inflation for last 30 yrs was 6.5% (based on past data) , lets assume it will be 6.5% for next 30 yrs on an average . Then the monthly expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs) . If he takes a Term Insurance at the start , his yearly premium per year for 50 lacs cover would be Rs 11802 for 30 yrs tenure from Aegon Religare .

Which means , he is going to pay total premium of 3.54 lacs in his entire life . How even if he gets this money back at the end , How much will it benefit him ? How many months can he survive on this money ? 2 months is the answer !! , With expenses of 1.65 lacs per month , the money he gets back from term insurance is enough for not more than 2 months , Lets take maximum 3 months . That's it !!! .

 So Following are the questions needed to be asked

•                Do you want to put your Family at Financial Risk because you are not getting 2 months worth of expenses back ?
•                For a small amount you "don't get" at the end , are you not being childish to Secure your family.
•                Don't you think you are seeing Term Insurance from a wrong attitude ?
•                Are you not concentrating on "what you are not getting" rather than "what you are getting" .

We already have "Return of Premium Term Policies", but they are themselves idiotic because they are again designed to just exploit the weakness of people who feel that term insurance is waste of money because they dont get their money back .

Reason why Indians dont like Term Insurance

Reason 1# : Most of the people concentrate on number and explicit data , like the money they are not getting back or its a waste of premium if nothing happens to them . They fail to look internal advantage which term Insurance provides

Reason 2# : We are emotional with Money , we are more concentrated with Growing money and getting money back rather than what value it provides in our life .

Reason 3# : Most of the people think that the probability of dying is much lower than an average person which is again totally idiotic . We just don't want to visualise a bad situation and hence do not concentrate on that situation .


In life we don't appreciate things like Health , small moments of happiness , nature , time spend with our loved ones which are most wonderful and real things in life. Term Insurance is one of the similar things in personal finance domain . You just need to shift your focus of view from "what you are losing" to "what you are getting" , once you do this with Term Insurance and your Life , Both with become wonderful .

Posted By : Pravesh P Jain & S Rahul Jain 


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