As you go towards stepping into a job life, you will have to make decisions on lots of things. One of them being investments. First few months earning will go towards investing in things which upgrade the standard of living, enjoying freedom by doing vacations, etc. But as you settle down sooner or later you’ll need to invest thinking about future with one of most critical of them being ‘Term Insurance‘. Insurance the product which sells better on dreams and fear, far from reality.
Introduction
I bought my term insurance recently at 29 to cover myself till age 60. ‘Term Insurance’ encashes on Fear about what would happen to your family after your sudden death, how will they manage expenses in the future in case of an untimely death. ‘Medical insurance‘ in case of an accident to prevent from hefty hospital bills while you stay at a luxurious hospital happily while charging everything to the medical insurer. Lately this industry has now started making you great offers to make big bets on your death. Offering insurance till age 99 or even till 85 is one of them. They are claiming that due to progresses in medical science, we humans will have increased life span from about 70 years average currently to something like 99 in future(Src: World Life Expectancy and World bank).
This axing of life is where an ACT of GOD by virtue of heart attacks, etc. will make your family members really happy after your death(depending on the age you’re dying). Yeah I’m saying happy because we need to see the actual composition of family dynamics right now. The families are getting broken faster than ever. Slowly we are moving to a single child with a single parent sort of future. The parents who have grandchildren will know how much those kids care about them. In this tech savvy generation, many such grandfathers are just counting days on earth because many are just living with their kids out of social obligations, with the grandchildren seeing them as some really old ancestor who doesn’t know how to operate the smartphone. For grandkids, they are an ATM machine which they can turn on to by making happy puppy faces to get their wishes fulfilled. An out of place person whose life or death could be cared by very few suddenly goes leaving behind a more than a fortune worth of money just by a term insurance.
It may seem that above paragraph shells out lots of negative experiences, but the point I’m trying to make is to consider yourself in that position and ask yourself, would you really want to leave a lottery of that sort on event of your death around age 61-65 say to the family where your son is now up on his own and is having his own standard of living. And you leave behind a term insurance of 4 crore. Won’t your actual investments in these 30-40 years justify to maintain that standard by the same cost.
Getting to the Financials
The point insurance companies make is considering inflation, do you really think even 1 crore or even more would really be sufficient to sustain the lifestyle we are currently living after 30 years? They would always want to push you for 2 to 4 crores depending on your current earning power. In that case lets take the example that even a regular premium payment of some 12k to Insurer for 30 next odd years aggregating to some 3.6L is just 10-13% return in reality(in case of demise at age 59). The only thing is I’m not paying 3.6L at once and by paying a premium of just 12K I’m getting a big bet(83000%) of return in case an Act of GOD happens in first year. Let’s Understand this by below diagram:
It is this return which makes people go crazy, and makes people opt for unnecessary high premium term insurances till extremely high age. Why do they forget that in case of your life’s happy scenario which is if you’re insured till age 85, say you die at age 84, you are only getting a return of 10% which people of that era(say year 2075 onwards )won’t be happy about according to insurance sellers. And in case you live more than that age, you just wasted those high amount of premiums making only Insurance companies richer.
For a happy scenario of living life, an ideal way is to maintain that standard of living is to follow the mantra of ‘consume less and earn more’. And on top of that earning by investing in pension instruments and other high return on growth investments, acquisition of assets,etc.
Conclusion
As per definition Insurance is protection of asset. So why not invest money on actual Assets instead of its cover and buy cover only till an ideal age where you look forward to what’s going to happen the next day. Also there’s always option of adding a topup when we feel our actual assets are about to outgrow the cover in next 5-10 years before age 50. Ultimately goal is to live for myself and family members with them more hopefully and pass knowledge and belongings in case of demise rather than the bet amount. By buying an insurance cover till 60, I’m betting to beat this bet handsomely by not betting for bigger life.
Note: Purpose of this article to make people think that term insurance is a useful big bet on your death which everybody should take. But resorting to making yourself cover till 99, you are turning it to an investment. I’M NOT A FINANCIAL EXPERT AND THIS IS JUST A VIEWPOINT INCLUDING EMOTIONAL FACTORS which sellers won’t make you think of when selling it.
nikhilporwal7 
More Details of my term insurance:
Its a pure term insurance meaning no return of premium.
Payment term is till 60 years not opted for 10 year payment term.
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