How to select the best insurance for you?

• Life insurance is a type of contract between you and the insurer in which the insurer promises to pay an amount to your family in case of an unfortunate accident and death.
• Life insurance is not an investment but bankers/insurance agents will sell you them by saying this to complete their targets.
• ULIPS, endowment, and make-back plans are also not good options like insurance or investments because they did not provide you a life cover their maturity interest income is just 4%-6%, your money is locked for 5 years, and these policies are for 10, 15, or 25 years.
• You should take only two types of insurance, namely health cover and term insurance.

Main Content of the Article.

Life insurance is a type of contract between you and the insurer. This contract is executed if you had an accident and you are no more. The money which was insured will be given to your family for their financial security.

Insurance financially protects your family after you, and it should not be considered an investment.

However, whenever insurance is sold, by the agents you will be told how this is a good investment tool or will secure your children’s future.

But why do they say no?

The 18% cost of the insurance sold between the years 2000 and 2015 was borne by the customers. This money was received by the insurance companies as income.

This 18% is the reason that the insurance is oversold or miss -sell to you.

Also when you buy insurance your money is locked for at least 5 years.

Also,?redemption or taking back your money from the insurance is not easy as it requires you to go to their office and present them with a long list of documents.

Let us see this with an example of Mr. Arpit Arora’s three uncles- Arun, Varun, and Tarun and see how they buy insurance.

For example:

• Arun does not have enough money to invest in insurance policies. So, he has neither taken a life cover nor done any investment.
• Varun buys insurance but he buys ULIPS endowment and money-back plan.
• Tarun is doing something completely different.

But before we look into the strategies of these 3 people let us understand how the insurance works.

How does Insurance work?

Let’s take an example to understand this.

For example:

• Suppose you earn Rs. 10 lakhs.
• If you want to get an insurance cover, then you should take a cover of at least 10 times more than your income. This means that you should take a cover of at least Rs. 1 crore.
• So if you are getting an insurance cover of Rs.1 crore, then you have to pay one-tenth of it in the form of a yearly premium.
• In other words, this means a premium of Rs.10 lakhs on Rs. 1 crore is to be paid.
• But this will be impossible for you because the premium is equal to the income you earn.

Exactly, this is the problem you face when you buy ULIP, endowment, and money-back plans. if you buy such plans, then you will not able to insure your life. This system has been designed in a manner that the insurance company gets all the benefits and not you.

If this is the case, what are you going to do?

You will not take Rs. 1 crore insurance, but you will get the insurance of Rs. 10 lakhs and pay a premium of Rs. 1 lakh.

But is this the right decision?

Let us take an example to answer this question.

For example:

• When you buy a new car of Rs. 10 lakhs you get its insurance for Rs. 10 lakhs and not for 1 lakhs.
• Now, when your life is worth Rs. 1 crore, then you do not get it insured for Rs.10 lakhs?

This is the situation in which Varun was stuck and was not able to earn passive income.

But there is a way like Tarun to be rich and insure themself adequately by earning a lot of passive income.

Required Insurances

You should take only the following two types of Insurance:

1. Health Cover

You should take a health cover that secures you and your entire family and cover all types of illnesses and health issues. For some people, the health cover can cost Rs. 10 lakhs, 20 lakhs, or even 50 lakhs depending on where you want to be treated.

2. Term Insurance

Term insurance is a part of life insurance and it is similar o car insurance.

In terms of insurance, life insurance is done but with no investment. You just get an insurance cover in this and its amount should be at least 10 times your income.

For example:?

• If you are earning Rs. 10 lakhs, then you should take a cover of at least Rs. 1 crore. But, your premium in term insurance will not be Rs. 1 lakh; it will be much less depending on your age, health, and other factors decided by the insurance companies internally.

Why you should not invest in ULIP, endowment, or money back?

The reasons are:

• You will not able to insure your life with this.
• Its maturity interest income is just 4%-6%.
• In this, your money is locked for 5 years.
• Most importantly, these policies are for 10, 15, or 25 years.

So, if you want to invest for 10, 15, or 25 years, then why don’t you invest this money in the equity market?

For example:

• You want to take a cover of Rs. 10 lakhs, for which you have to give a premium of just Rs. 1 lakh.
• If you allocate this Rs. 1 lakh towards a term plan and invest the remaining amount in the stock markets, which has given a 16% return during the same period, then you will get an extra return of 10%. This means:16% ( of the stock market – 6% of life insurance = 10% extra return.
• Therefore, this 10% will give you Rs. 10,000 extra income every year on Rs. 1 lakh amount and Rs. 2,50,000 ( =Rs. 10,000*25 years) if you keep this for 25 years.

Bank Relationship Manager

Due to the pressure of their targets, the bank Relationship Manager might miss- sell the insurance policies to you.

But there is a trick by which you can protect yourself from this miss-selling.

Whenever you talk to the Bank Relationship Manager about an insurance policy, ask them about this policy’s Internal Rate of Return (IRR).

From his expression, you will come to know whether he is miss-selling or providing service to you.

Massive Action Plan?

• Assess the value of your life it should be at least 10 times your income.
• Assess the total cover of insurance as compared to your existing insurance cover.
• Surrender all your non-term insurance like ULIP, endowment, money back plan, and any other policies that are not categorized as term insurance.
• Buy the term insurance so that you can ensure your life completely like you insure your car.
• Invest the money that you get by investing in insurance policies into the equity market through the ETF route for the next 10, 15, or 20 years.