By Tensing Rodrigues
You should buy life insurance only if you require it and only as much as you require. Given the purpose of life insurance you need to buy it only if you have dependents. Taking the case of an average family, it means the husband has to insure himself only when the wife and children depend on him, so in the case of the wife. This means, if only the husband is working he has to insure himself as long as the children are not big enough to earn for themselves and has to insure himself to the necessary extent till the wife is alive.
In other words, he needs to have sufficient life cover to provide for wife and the children till they begin earning. It means that, he will need a smaller cover when he needs to protect only his wife. The same if the wife alone is working. If both are working, assuming that the children are dependent only to the extent of 50 per cent on each of them, each of them needs to take proportionate cover. This seems like a very inhuman arithmetic. But if the disaster strikes, that proves crucial for survival.
I am so stingy about insurance cover because I consider it a necessary evil. I feel there are better ways of spending or investing, your money. You need to provide for the survival of your dependents if sudden disaster afflicts you. But beyond that, you need to provide for their physical, mental and spiritual health. The education of children is of utmost importance so also preparing them for life. This is the insurance for their future beyond mere survival. They should be able to become productive members of the society once they get out of your protective umbrella, not mere survivors. In the case of the spouse too, he or she should be able to live an active and productive life after your demise. The life insurance can provide for survival but one needs to create a protection beyond it.
That brings us to a very vital aspect of life insurance. Beyond a certain point you may cease to need life insurance. Life insurance is crucial in the early stage when you are building the nest and the hatchlings arrive. Survival is of paramount importance at this point. But as time passes as much as possible you need to create your own risk corpus. That is, start saving and investing, to the extent possible, to build such a corpus. After 20 – 25 years, you may be able to sit on a comfortable sum that can offer protection to your family in case you are not around. Then you do not need to buy life insurance from the market; you have your investment portfolio. You do not need to be a rich man or earn sky-high salary. With discipline and diligence you can achieve your goal of home grown insurance. Of course, this will be a short period because soon you may not have dependents. They would have stood on their own feet by then.
Now, let me come to that special situation when an endowment policy (EP) becomes the desirable product. It is only this case that you need an EP and it has to be a particular type of EP. Your children are growing and you know you will need a particular sum to provide for their education and settlement at a certain point of time. Let me clarify what I mean by settlement before I proceed. I do not mean getting them married. Expenditure on wedding does not brighten the future in any way. Marriage requires far different investments than that. On the contrary the dazzle of the wedding blinds us to the essentials of marriage.
The need to provide for settlement comes when the children are about to launch on a career and they need the critical minimum resources to get off the launch pad. You can definitely provide that. At that point however much they may want they cannot gather that critical minimum
Coming back to the need of an EP you may be saving and investing to provide for that future need of your children. But what happens if you die? The investment plan has to come to a dead stop. The EP can help in such a situation. The amount you have targeted has to be the sum assured of the EP. And you have to buy an EP with a waiver of premium rider. Then, if you are not around to pay the premium the insurer will pay it for you till the maturity of the policy. As a result your target sum will be available for your children, no matter what happens to you. This is the only situation when EP becomes a desired product; and it has to be an EP with waiver of premium rider.
*The author is an investment consultant. Readers can send their comments and queries to firstname.lastname@example.org