Life Insurance

Step 1: Whether you need it or not?

Anyone whose death will cause financial trouble for near-and-dear ones should get a policy. In case, you find that you have enough Assets to cover up their needs, as per calculation in the next step, then also you don’t need to have a policy.

Step 2: How much you need?

The Needs based approach:

  1. Income Replacement Needs – What are the annual expenses of your family? Multiple by 20 (this would mean that they can get by a 5% yield).

  2. Debt Repayment Needs – If you have home loan, car loan, credit card debt (=this is really dumb, if you have it), or any other kind of loan, add this amount.

  3. Education Needs for Kids – School and College education amounts (take help of the Time value of money article to have an idea of the Present Value of that goal).

  4. Any other major expenses like marriage of kids or even your spouse (why not!).

Add all of the above values. Subtract your present value of Assets from the above. The final amount left is what you should cover by using a life insurance policy.

STEP 3: Which one to buy?

Term Insurance. Online. Period.

If the policy has anything else in its name – reject. Only Online Term Insurance (Redditors should do that only). Buy Term and Invest the Rest.

STEP 4: Which company to use?

Presently, every major company has an online policy. If you like govt of India, you can go ahead with LIC. Otherwise, you can have ICICI, Aegon, HDFC, SBI, Kotak, etc. Compare the insurance premium and choose the reasonably cheap.

Important Points to Remember:

  • Declare everything as per the form correctly. If they ask you "have you had any surgery in the last 5 years?" and if you had a surgery on 5.1 years ago, you should write No.

  • Be honest in all the answers.

  • If they ask for a medical examination, get it done.

  • If after the medicals, they load up based on xyz reason, either pay up the higher premium or decrease the cover of this policy (you can take another policy later on).

More details are there in Wiki, but mostly you would not need it.

This is a Must Read Post @ Subramoney.

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