Picture a scene from the 1980's, it was the month of February. My accounts department had just dropped a bombshell - I would receive virtually no salary for the next two months of the financial year. After much prodding, they told me that I had not given them proof of having invested in tax-saving instruments.

 

Rushed home to make a call (there were no cell phones then) to my insurance agent. "Can you give me a policy which has an annual premium of Rs. 10,000 (that's what I needed to invest)?" And my agent was there to rescue me - as always. There was no discussion on the amount of insurance I needed. The only condition was that the receipt reached me by the day after.

 

Now, 20 years later, I get a princely sum of Rs. 60,000 from the insurance company, tax-free. This is meant to meet my retirement needs. That's all? I do some quick calculations. I paid over Rs. 2 lakh during the past two decades. A call to my insurance agent follows. He explains to me that it was a money back policy and I received Rs. 50,000 every 5 years as well. Where I used those funds is just a blur.

 

Who is to be blamed for this situation? Both of us; my insurance agent and myself.

 

The individual, me, who never thought of getting a financial plan done or explaining what my needs were to the agent; and the agent- who could not and would not tell the client that, though the outlay available for premium was Rs. 10,000 annually, he could have obtained a much higher and needed cover with the same premium. But that would have taken some explaining; so the best way around it was to a it.

 

Fortunately, the perspective has now changed, insurance is taken based on an individual's future worth (sum of his future earnings till retirement) or better still, based on the amount that is required by the family to maintain their lifestyle even after the loss of their breadwinner.

 

While the main purpose of insurance is expense protection and term covers are easily understood now, you must consider the critical illness rider that is equally important to possess. This rider covers a few major illnesses like cancer, heart disease, stroke and so on, is provided to ensure that loss of income on account of these illnesses is taken care of. It is truly 'critical' for everyone to have some coverage on this rider.

 

One of the reasons why individuals a taking this rider or life insurance or even medical insurance is that they are already provided that coverage by the company they work for. At the last million dollar round table (MDRT) conference that I attended, one of the speakers could not have put it better: If you were skydiving, would you prefer to use a parachute that you owned, or one that was cheaper, much cheaper, and available on rent for that day? What would happen if you left your employment, and took a holiday before taking up the next assignment? Imagine, handing over the rented parachute in mid-air and hunting for a new one then.

 

Do not delay in buying the right insurance for yourself today. The delay might cost you a lot more than you think. Become financially savvy - visit your financial doctor for a health check up regularly and stay healthy.

 

Money Matters Mantras:

Insurance is a must for all: do not delay that much required cover

Taking inadequate cover will not suffice

The Riders on insurance policies are worth considering

When changing your job/any change in lifestyle - do not forget to review your insurance cover

Regular check ups prevent unpleasant surprises

Life is not constant- Why should your cover be?

 

 

 

 

 

 

By Lovaii Navlakhi

 

The author, Lovaii Navlakhi, is a Certified Financial Planner and the Managing Director of International Money Matters Pvt. Ltd. He can be contacted on lovaii@internationalmoneymatters.com