My 45-year-old cousin tells me he has seven life insurance policiesmaking him among the most ‘insured’ people in the country. I asked him to humour me and answer a couple of questions:
- How much premium in all: 1 lakh per policy (basically, the tax exemption limit each year) totalling 7 lakh of premium every year
- Amount of insurance or sum assured per policy: 10 lakhper policy or 70 lakh in all. In other words, his family would get 70 lakh on his demise
As it turns out, they have a 1.25 crore home loan still outstanding on their house that’s probably worth 2 crore now. If he unexpectedly passes away, his wife would either have to cough up an EMI of well over 1 lakh per month or sell the house to repay the loan. And this comes from someone who believes he’s among India’s best insured!
My cousin’s current insurance cover (of 70 lakh) and savings (of20 lakh) add up to Rs 90 lakh, while his outstanding loan amounts to 1.25 crore. This according to me is grossly inadequate. In order to cover his loans alone he needs an additional insurance of35 lakh.
Given that his future expenses are likely to move up to Rs 3.58 crore, he requires an additional insurance of 3.93 crore to cover his future expenses and existing loans.
A term insurance (or pure insurance as some might call it) is something he really needs. A term plan pays the family the insured amount only in the event of death of the insured and is therefore much cheaper. A 1.25 crore assured term plan for my cousin would cost him less than half of what he’s currently paying with a major focus on saving tax rather than securing his family.
There are various ways to save on taxes, but not as many options to insure your family’s future.
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