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28 March, 2015 17:45 IST
Insurance? I do not need it at all!
Source: IRIS | 23 Nov, 2012, 10.29AM
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Author: P.V. Subramanyam

I have posted a similar piece long ago…and thought it worth repeating…with some minor alterations…

Some time ago I got a mail saying ''Insurance is a waste of money. I am 62 and never needed it''. It is such an amazingly stupid statement I could not believe it. ‘I’ have not needed it does not mean ‘nobody’ needs it. So it is foolish to talk like this. It can be extended to ''Nobody has ever stolen from our house, so I do not need to lock it in the night'' - sounds convincing?

Or saying nobody in our house has been admitted to a hospital so I will not be admitted. Even worse ''I have been seeing my Grandfather for so many years. He is 83 years old and has NEVER died, so he is immortal.''

This is funny!

Here are a few old thoughts on insurance - life or general does not really matter much!

Insurance - Life or General is largely about answering some questions like

''What if….goes wrong''?

The fundamental objective of insurance is to provide a means to offset the burden of financial loss. Think of insurance as a premium paid for ''transfer of risk'' premium. An alternative method of dealing with risk. You are paying an insurance premium (small cost) to avoid paying the total cost for a catastrophic loss (such as your house burning down). So it is fairly obvious that you will not insure your mobile phone (you can afford to carry the risk on your own self) but will insure your house (the burden of this risk is too heavy to carry). So the house risk you transfer, by paying a premium. Mobile loss risk you keep on your own self. As simple as that.

A sound insurance program should answer the ''what ifs'' in your life. For example:

What if you were faced with a major medical expense? (health & illness insurance)

What if you were unable to work for a long period of time due to a severe illness or accident? (disability insurance and/ or critical illness insurance)

What if your most important employee dropped dead? (Keyman Insurance)

What if a fire destroyed many of your personal possessions? (home owner's insurance)

What if an employee stole data from your company (D&O insurance)

What if you were involved in an automobile accident? (auto insurance)

What if you were to die tomorrow? Who will protect your income flow? (life insurance)

So if there are some more ''What if'' kind of questions….just see whether the risk can be measured. If it can be measured, it can be transferred. Transfer costs money (premium) and the benefits are - the insurer will pay all genuine claims. That is all.

If you are confused about which Term plan to buy go on to the net and look for the cheapest plan. If it is Unit linked policy you wish to buy, buy term insurance!!! Choose the cheapest one for a term that covers your working life.

If you are 33 years of age and will work till your age of 55, you need a 22 year term plan.

Check out Birla Sunlife, LIC, Hdfc Standard Life insurance, Kotak, Religare, SBI, Icici Prudential, Max New York Life, Aviva, MetLife, ….does not matter choose the cheapest term insurance. If you are still not happy with leaving money in your bank account..go and get a Unit Linked Plan or a Whole Life Plan or an Endowment Plan or a Moneyback Plan! Of course, your agent then does not have to buy a pension plan for himself…

P.V. Subramanyam is a financial domain trainer and can be contacted at 
pv.subramanyam@irisindia.net

The author also runs a blog - www.subramoney.com

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