A few days ago I did a post sayings ‘Indians are under-insured’. It was so good that Dr. Khan came and commented (!)..

However some of the comments were really saddening!

When a person died (and his son died with him) – his wife got more money on the child’s policy than what she got on her husband’s policy.

This is so anectodal! This is like saying my grandfather died lying on his bed…my grandmother died in her sleep…so I will not sleep (or worse I will not sleep in a bed!).

The mistake that the couple made was that the father was terribly under-insured and the son was unnecessarily over insured (or insured at all if he was not earning). The probability of an older person dying is higher than a younger person dying. Period. Insurance premia works on probability. My father lost a brother to an accident (60 years ago, when the brother was 30) – but all other brothers died of old age. As did my grandparents.

One event does not make a rule.

I do not know enough about medical insurance, but in any insurance (indemnification insurance) one loss can be claimed from only one insurer. The logic for taking 2 policies is just to increase the cover. Long ago when I took I was told that New India will give a cover of only Rs. 5 lakhs – so I suggested 2 policies of Rs. 5 lakhs – from 2 different insurance providers. Do not know enough about general or medical insurance. I have a New India policy for our family.

Life insurance is not about replacing life. It is about replacing cash flow. So a person who brings in the moolah should be insured – could be the husband or wife does not matter. Cover should be taken for the cash flow that you will miss. If you are 40 years of age and both you and your husband have been earning well and have provided for all your goals, paid off the housing loan, live with 10% of your salary, have a huge portfolio, a spare house…just rethink. You may have outgrown the need for life insurance.

Life insurance is not because you will die, it is because your dependents have to live…and live well. The stupid industry calls it life insurance. If I had my way I would have called it ‘Living expenses insurance’. After all it CANNOT replace life, it can only replace cash flow / living expenses. Think about it.

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  1. Dear Subra, A real eye opener & to me the best one was – ‘Living expenses insurance’.

    Thanks

    Ashal

  2. Agreed !!
    But few of them knows and thats why there are few Term Insurance Plan sold compare to other Plan.

  3. Sir
    So rightly said “LIFE EXPENCE INSURANCE ”

    I so tried to explain term insurance to friends/realtives in wain ..people want MONEY BACK as if every body will live forever

    Your writing SHOULD be used for explaining importance of term insurance.

  4. Dear Sudhir, We the common people are to blame for low Term plan selling. Can you believe – out of my friend circle hardly 1 or 2% have Term plans & all others are more than happy with combo plans. No matter all are under insured. All these are well educated, doing fine in their respective financial lives & in general all are running some heavy loans (Home what else). I tried to give them the logic of term plans but at the end & per came reply (just like those Maruti advt.) – Kitna Milega (Read Return). Even God can’t help us.

    Disclosure – As per my own calculations I feel I’m adequately insured
    through Term plans.

    Thanks

    Ashal

  5. Endowment and money back plans seem to always win over term insurance. I work in the capital markets and I still have trouble explaining to friends and colleagues (who also work in the BSI space) why term is better. Eveyone always tells me “par kuch milega nahin na”. What to do – we are like this only.

  6. when someone ask me back “wapas kitna milega?” while explaining about Term plans, I tell them back “how much you are going to take back on your vehicle insurance?” They draw blank face on that. Explain them if they can have vehicle insurance just for protection, their life is even more important to protect than vehicles and that’s the exact point of Term Insurance. Insurance + Investment only works best for industry, not for people like you and me.

  7. I do not know enough about medical insurance, but in any insurance (indemnification insurance) one loss can be claimed from only one insurer. The logic for taking 2 policies is just to increase the cover. Long ago when I took I was told that New India will give a cover of only Rs. 5 lakhs – so I suggested 2 policies of Rs. 5 lakhs – from 2 different insurance providers.

    Is insurer and insurance provider different entity? If not, then why to take insurance from two different insurance providers when you know that we can claim from only one of them?

    I had Aegon Religare life insurance and I was planning to take one from LIC as well. Is it of any use if my dependents can claim only one?

  8. @SUHAS JORE
    ‘I so tried to explain term insurance to friends/realtives in wain ..people want MONEY BACK as if every body will live forever,’
    i think, in case ,the money back polic holder outlive the policy term, he would be at loss, more loss, compared to the term insurance policy holder.
    @sanjay,
    i think, one can claim and get the insured sums from more than one insurers, if insured dies, provided the previous life policy should be declared to other insurers at time of proposal alongwith other facts.
    ‘one loss can be claimed from only one insurer’, i think refer to the claim for medicals, where for the same expense you can’t ask rembursement from two companies.
    subra sir, kindly correct if i am wrong.

  9. Dr Mohammed Ali Khan

    ‘Living expenses insurance’- Excellent terminology..

    As I see it, the main problem with insurance policies is the terms which they use to name the products, which are usually, terribly misleading/ confusing. The state of affairs is sad, because, if used properly, insurance is a very effective tool.

    Unfortunately, the insurance companies create hundreds of plans when one is sufficient and use esoteric or fancy words like ‘endowment’ ‘wealth’ or equivalent Hindi names and confuse people.

    People end up putting thousands of rupees in idiotic schemes with terrible returns and expenses, which could have been put to better use in buying MFs or even gold. A fraction of the money used on buying such stupid schemes could have instead spent on buying term insurance would have made such a huge difference to the family in the event of death of the wage earner.

  10. Dr Mohammed Ali Khan

    @ Subra
    The previous article on insurance was very good. It vindicates all the hard work you have done in putting up this site. Hats off to you, and keep them coming!

  11. All insurance is financial compensation. An insurer cannot bring back to life, much less replace a lost limb, a damaged heart or a damaged asset.
    the “kitna wapas milega” disease has been brought about by mixing investment with insurance. So much so that even for non-life insurance clients demand a ‘return’ on insurance saying ‘kuch nahi mila’.
    But sadly very few vendors (insurers/intermediaries) have the courage to tell the customer there cannot be a ‘return’ on risk premium. Everybody wants to ‘yeda banke peda khaneka’

  12. Subra Sir
    Great sequelae to the first article on insurance. Only one point of confusion for me. “but in any insurance (indemnification insurance) one loss can be claimed from only one insurer”. Does it apply to LIFE Insurance too. If yes, then what is the rationale of buying more than one life insurance policies.

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