POSTED BY August 3, 2009 COMMENTS (260)ON
“We have no desire to make anybody look like a blithering idiot, but we do love it when they do. “– Stephen Colbert. One of the reasons why most people do not take Term Insurance is because “They don’t get anything back at the end”.
In this article, I will show you why this is a psychological issue. Even if you get your money back at the end of the tenure it won’t make much difference. In this article I will prove that the argument “Term Insurance is waste of money because you don’t get anything back” is amazingly idiotic.
Why people don’t like Term Insurance is the question. The answer is simple: because you don’t get anything if you survive the whole tenure and hence the amount paid as premium is wasted – this is claimed by millions. Fair enough!
The first thing is, these people do not understand or appreciate the Importance of Life Insurance. Now let’s see this situation from a different angle. Assume you get the money at the end in your Term Insurance.
Manish is 28 yrs old and got recently married (oops!!). He earns close to 40,000 per month. His monthly expenses are around Rs.25,000 overall and he saves 15,000 per month (hehe). He also has his parents as financially dependent on him.
He is 30 yrs away from his retirement. He calculated his Insurance Requirement and it was close to 50-60 lacs minimum. Let’s take it as 50 lacs for simplicity for now. (Get more of Insurance Articles from Archives section.)
Now is the fun part: his current monthly Expenses are close to 25k. Now what will it be when he retires after 30 yrs?
So the average inflation for last 30 yrs was 6.5% (based on past data). Let’s assume it will be 6.5% for next 30 yrs on an average. Then the monthly expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs). If he takes a Term Insurance at the start, his yearly premium per year for 50 lacs cover would be Rs.11802 for 30 yrs tenure from Aegon Religare.
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Which means, he is going to pay total premium of 3.54 lacs in his entire life. How even if he gets this money back at the end, how much will it benefit him? How many months can he survive on this money? 2 months is the answer!!
With expenses of 1.65 lacs per month, the money he gets back from term insurance is enough for not more than 2 months. Let’s take maximum 3 months. That’s it!!! Are you confused with Calculations, See this Video presentation by me where I explain how to do important Calculations in Personal Finance.
We already have “Return of Premium Term Policies”, but they are themselves idiotic because they are again designed to just exploit the weakness of people who feel that term insurance is waste of money because they don’t get their money back.
Read this to understand why Plain Term Insurance is better than “Return of Premium Term Insurance policy”.
Reason 1#: Most of the people concentrate on number and explicit data, like the money they are not getting back or it’s a waste of premium if nothing happens to them. They fail to look internal advantage which term Insurance provides.
Reason 2#: We are emotional with Money, we are more concentrated with Growing money and getting money back rather than what value it provides in our life.
Reason 3#: Most of the people think that the probability of dying is much lower than an average person which is again totally idiotic. We just don’t want to visualize a bad situation and hence do not concentrate on that situation.
In life we don’t appreciate things like Health, small moments of happiness, nature, time spent with our loved ones which are most wonderful and real things in life. Term Insurance is one of the similar things in personal finance domain.
You just need to shift your focus of view from “what you are losing” to “what you are getting” once you do this with Term Insurance and your Life, both will become wonderful.
Please comment on what do you think about this and do you agree with it. Are you victim of such mindset?