Are Indians over insured?
Are you surprised at this title? Has the Insurance industry not been telling you that Indians are under insured?
I met one person last week – a lady who had taken VRS. She was not planning to take up a job again and it was the end of her working life. She was under 40 years of age and her life insurance was in …well a mess.
She knew her policies in terms of premia per month, per quarter, or per annum. No clue why she had any of those policies. She was earning about Rs. 30L and thus had tremendous premium paying potential. She has a husband earning about Rs. 1.4 crores. Her parents or siblings do not need her money for sure.
So technically she had no dependents. She was paying a premium of Rs. 5L per annum with a plethora of policies. Her sum assured was a princely Rs. 50L. Even had a moneyback policy meant to fund her son’s education when he turned 19! He was not about 11 years of age.
Met another person – another lady – who was so terribly over insured with TERM INSURANCE itself, that to me it looked burdensome – and far more importantly unnecessary.
If you are a woman earning Rs. 15L and aged 40, how much term insurance do you need? Forget all thumb rules, about Rs. 1 crore is enough. And till what age should one have TERM INSURANCE? till your age at which you will retire. We are all fooling ourselves believing 60 years to be the retirement age. In this country of youngsters, people will be lucky to keep their jobs beyond the age of 55 years.
So she needs a Rs. 1 crore TERM INSURANCE, from the CHEAPEST PROVIDER, BOUGHT ONLINE.
Well that is what she NEEDS. Only problem is that people buy what the RM sells (term insurance) with extra loading (hey bank has to make money) for an amount which the RM proposes. So it becomes a Rs. 2.5 crore insurance, till age 75 (maam it is available till 75, not like other insurance companies).
SO WHAT you can ask, Right? Well she is over paying for an over insurance for an excessive period of time. And worse, at a higher rate. Tch tch….so what?
Hmmm…i wish I could sell a ‘Wild Animal killing you’ insurance. Value Rs. 1 crore. Premium Rs. 750.
Brilliant deal no? Valid for 1 year….want it?
vatsa
@subra sir:
Thank you for your service.
you can delete all my comments from your blog.
Just wanted to convey one thing
I am not talking about people taking billion$ insurance policies but insurance companies settling claims of million$ policies.
I am still looking for claim settlement statistics in india of term plans where SA is greater than 50 lakhs.
vatsa
addendum:
@subra:
It will be really helpful if you could get us those statistics
Jitu
First time in 3 years, I have seen Subra replying to comments on a specific post.
Can not miss this one 😉
@Abhi : if you want to meet Subra, get ready for some hard punches thrown at you 😛
Rakesh
Visited a leading private bank for locker facilities. As usual was on waitlist. The banker said if I bought their so called tax saving products I would get the locker on priority basis.
Promptly refused, prefer to wait.
MRHDK2012
Subra,
Though generally I am not in favour of edit policy, seeing this comment trail I wonder you should consider one. We expect the readers to be rationale individuals who can evaluate pros & cons of a decision and not folks with extremist views.
I am a regular reader of your blog and it has helped me bring tremendous clarity in my thinking in personal finance. I am not surprised that this blog has so many regular followers.
Subramoney.com is one of key sites that I visit every day. If there is no post on any day, we hope/pray that everything is well with Subra and his family.
Ravi
I think each person is different and if you are the sole bread earner and have multiple dependents, you should go for term insurance policy multiple times your annual income, also consider what is your present net worth while arriving at the Insurance amount.
If both husband and wife are working and have a decent net worth(after paying of all debts) – i feel term insurance policy shouldn’t be more than your net worth or 2 times your annual income whichever is higher. Insurance amount should be enough to help your partner to move on with their life.
These is my thoughts, i am married and 30 years old, i can be wrong. I have a net worth of 80 lakhs(do not own a house). My term insurance is around 80 lakhs right now!!
Does anyone here have a formula which can suggest how much term insurance one should buy?
dr m kishan
Subra Sir, I am very grateful to you for answering to me specifically. It’s really an honor for me. Please accept my big (font 72 of MS WORD) thanks for that.
Coming to the issue. I felt term insurance was for helping dependants to continue their dreams and aspirations as if the earner was still living, and not just for “surviving”. So if a couple together earn an amount then all the future plans for children will be chalked according to a program in a feasible manner. This program will surely get affected if any one of the couple does not exist. This disturbance in the future programming can be minimized by insuring both the earners. At least that’s what I felt when I insured my wife along with me who earns equal to me. But may be I am wrong. I agree that a wife’s income may not be required for surviving when the husband is earning in a good manner. I will surely go through all your blogs of term insurance before topping up our term insurances this year.
Thanks again for answering my question.
Kishan
rinosh
Dear Subra,
I am getting confused here. Is it better to take a Solid amount of Insurance (1 Cr) when one is in late twenties and pink of health rather than take a term insurane at about 45+ at a higher premium and medical checkup? Wont your sum assured vary according to age an risk factor for the company? What will recommend as best strategy? Is it to take term insurances at each stage of life?