Is life insurance essential part of financial planning?

Q: Divide investments for three ways, because we usually talk about financial planning where you say that if you are earning and you have dependence, a term cover is essential. A medical insurance is something that is also very important and then come investments. Where you want your money to work for you, a lot of people think insurance is a safe way to go about it. How much insurance should you have? How much should you have of products which lock away your money or tie you down to investing Rs 50,000 or Rs 2 lakh every year for the net five years in this kind of market and job scenario?

A: Financial planning on a basic side is very, very simple. Get your life insurance. That is absolutely mandatory. You need it because you do not have a legacy. If somebody is giving you a legacy, if you have a inheritance of Rs 10 crore or something like that then you do not need life insurance, so also note that. If you do not have something get your life insurance in order. Buy a term plan, that is the end of story. Get a health plan, because often company covers and corporate covers are not adequate enough. Maybe if you change jobs and suddenly something happens you are really left uncovered. So get a good health insurance cover. Approximately Rs 3-4 lakh Rs 5 lakh per person in your family is good. You can get a Rs 10-15 lakh floater also which are very, very economical. Beyond that the world has changed in the last 15-20 years. Indians have this obsession of getting into insurance policies, the money back policies. People do not realise they are going to get 1 percent and 2 percent and these are published facts on the websites of companies. Despite that people like to believe the agent that they are talking to because he is related in some fashion or some way and they blindly invest money and they are in for a very, very rude shocking surprise. So endowment policies, money back policies are actually burning away and eroding your money. You are better off putting money into fixed deposits. LIC website for the last 10 years has not declared more than 3 or 4 percent bonus, so why would you want to keep your money there, things like that. You do not want to do such complex things. Term plan, health plan, some SIPs, some blue chip stock, real estate, gold, that should be great.