Sunday, September 28, 2014
Life Insurance cover must be twice your annual salary – Myth or truth?
Sun, 28 Sep 2014 23:06:14 -0600
Insurance is about managing risks so you can protect yourself, your loved ones and your lifestyle if the unexpected happens
The day you’ve been waiting for has arrived; your brand new car is ready to be taken home. The first thing you do before driving it is get it insured. There’s no way you would risk anything happening to your new car!
This is a common scenario. Most of us don’t think twice about insuring our possessions, but what about protecting the most important asset – YOU? If you were in an accident and couldn’t work, how would you and your family afford your medical bills, your mortgage and daily expenses of running the house? When you go out of station for office work for a week, you give your spouse additional Rs 20,000 in her hand to ensure there is no financial hardship till the time you are back. Have you ever thought How much money should you hand over to your spouse if you were not to return home ever? When it comes to insurance, the old adage, “better safe than sorry” rings true.
The underinsurance epidemic
One of the biggest security threats facing Indians is the underinsurance epidemic. Majority of Indians simply don’t have sufficient insurance cover. Even more alarming, many lack any cover at all.
Consider the statistics: One in five families will be impacted by the death of a parent, a serious accident or illness that renders a parent unable to work. The typical Indian family will lose half or more of their income following a serious illness, injury or the loss of one of parent as a result of underinsurance. 95 per cent of families do not have adequate levels of insurance.
As human beings, we don’t like to think about getting sick or even worse, the death of a loved one. While no one expects to encounter mishaps, being prepared for adversity can help you protect against financial hardship. Insurance is an important part of any financial plan. In fact, wealth protection is often easier and cheaper than wealth creation.
A comprehensive financial plan is as much about protecting wealth as it is about growing it. Life insurance is one of the best ways of protecting what’s most important to you. Practically speaking, insurance is about managing risks so you can protect yourself, your loved ones and your lifestyle if the unexpected happens. The tricky part can be figuring out your insurance needs and then how much you need to be insured for.
How much is enough?
While it’s easy to calculate the value of tangible assets, how do you put a price on yourself and your lifestyle? Deciding on a level of cover can be tricky; here are some things to consider for your insurance plan:
# How much is needed to extinguish debts upon your death?
# How much do your surviving dependants need to pay for living expenses?
# How much will your children’s education cost and how will it be funded?
# How much do your surviving dependants need to maintain their lifestyle without you?
# If you became disabled, how much would home modifications and rehabilitation cost and how much would you need to maintain your lifestyle?
# If you suffered a trauma condition such as cancer, how much would the treatment cost, over and above the cost of ongoing living?
# How much would you need if you became too ill to work for a period of time? Is it likely that you have enough sick leaves for an extended period of time?
While these questions may seem a little overwhelming, they’re an important part of developing a robust protection plan. Your financial adviser can help determine what level of cover is best for you depending on your personal circumstances, future goals and objectives.
Practically speaking – Don’t leave debt to your loved ones and most importantly let go of the myth- life insurance cover must be twice your annual salary!
(Roy is the chief agency officer of AEGON Religare Life insurance)