Term Insurance – Why you should not buy 1 crore Policy?
People are asking me about life insurance requirement etc. One of the regular they ask is term insurance for 1 crore policy is a good idea or not.
Why people always ask about 1 crore life term insurance.
There seems to be some mental blocking. Here, in this article I will explain the reason behind this.
Unable to Calculate the term insurance required…
People really do not know the life insurance coverage that they need to take.
I will explain in a simple way.
There are two methods that planners like me will follow to advise life insurance requirement to our clients. They are…
- Human Life value Method
- Need-based Analysis.
For example, If a person is earning Rs.4,00,000 per year and his age is 30 years. His salary hike expected every year is 10%.
Then after reducing his self expenses and expected future taxes his present value of net worth in today’s cost will be calculated.
From the above value arrived present existing life insurance cover will be reduced to arrive to the life insurance requirement.
You can use this online life insurance calculator to know the insurance coverage required. Click here to calculate.
When it comes to Need-based analysis, we planners will calculate present value of the loans outstanding, corpus required for special needs like child education, dependent expenses and house buying etc in today’s cost by deducting the discretionary assets value( excluding own house).
There are so many methods to calculate the life insurance requirement. But Most planners will follow need-based analysis.
As most people do not know these methods, they tend to buy random life insurance 1 crore from life insurance companies.
As Insurance companies are offering default term insurance for 1 crore…
I have checked some life insurance companies website, they are offering default term insurance for 1 crore.
As insurance companies are showing default option of 1 crore, majority of times people tend to buy 1 crore term insurance policy.
We take term insurance for 1 crore as our psychology tells about rounding off…
If we are buying Idly etc out side, sellers always round off the price.
They will not sell idly for 1.25 rupees.
Similarly when we require 80 lakh term insurance, we will try to round it off to 1 crore.
This is also one of the reason, we will go for 1 crore term insurance.
Comfort feeling of crorepati term isnsurance…
Few decades ago lakh pati trend is there.
People want to become lakh pati those days.
As rupee value has fallen all these decades, now people are dreaming of becoming crorepati.
Due to inner feeling of crorepati, people are buying 1 crore term insurance.
Buying term insurance based on the emotions discussed above is not a good thing to do.
Analyze the need of life insurance cover under need-based analysis, and then take the required term insurance on your life.
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