Insurance : Security or Investment ?

The moment you talk about “Insurance”, everybody raise their eyebrows and look at you, as if you are an insurance agent who is selling policies and earning commission for a living.

And I am sure; you will agree that when we see a person wearing a tie with a file in his hands, we somehow manage to predict that he is coming to sell more insurance plans to us and we better find an escape. Those who get trapped, they end up contributing more to his financial goals rather than their own.

The person buying insurance has to rely on agent to select a policy, which they think will solve their problems, but most of the times, they end up solving his financial problem than their own, by paying more insurance premium than required.

Insurance is much ignored and misunderstood subject. The basic misconception is that people think, it is “an investment”, this is where the problem is.

Insurance is “Not an investment”, but it is more of Protection.

To be more precise, it is financial protection.

I decided to write on this topic, when I figured out that one of friend is actually paying higher insurance premium for lesser sum assured.

What is Sum assured ?

The sum assured is the amount of money an insurance policy guarantees to pay up before any bonuses are added. In other words, sum assured is the guaranteed amount the policyholder will receive. This is also known as the cover or the coverage amount and is the total amount for which an individual is insured.

Well, you will come across this definition, if you search the web. It seems very easy to understand what is sum assured, but it is difficult to decide …..Right?

We are going to give you a simple formula to let you decide, “How much sum assured you need in order to secure your life against uncertainties.

Inflow and outflow

First of all, look at inflow and outflow of your income for example…if a person takes a policy for 10 lakh rupees (this is sum assured) for 20 years (tenure) and pays premium of around 50 thousand rupees yearly. So this 50 thousand rupees going to be outflow of income from your pocket and he will pay this for next 20 years.

Simple calculation, 50 thousand yearly * 20 years….that means this person will end up paying 10 lakh rupees from his pockets to insurance company in 20 years and his sum assured is also same 10 lakh rupees ( which is inflow). Hence eventually, he has not earned any interest or extra money on his investment even after investing for 20 years and inflation will keep on rising for sure.

This is the basic understanding; we all should have before we buy any financial product. 

This method is called inflow and outflow, simple to understand and easy to digest.

One need not be financial expert to understand inflow and outflow. Financial expert tweak information in order to sell the product, so be little conscious while you make such decision.

“How to decide your “Sum Assured”?

Well, this is the basic question where everybody gets confused and wonders what their real worth is, but one should move ahead with proposal only after answering this question.

Let me give you a simple illustration.

Suppose, John is an individual and his age is 25 and he wished to retire by 50. His income is 5 lakh per annum. He has got mother, father and his sister in his family.

To calculate his worth we will use below formula,

Retire age – current age = years left to retire

In this example,

Retire age (50) – Current age (25) = (25) years left to retire.

By doing this simple calculation, we come to know till what age or how many years he is going to work. We may say his working age is 25 at the time of taking the policy.

Now use the below formula to calculate his Worth or Value.

Years left to retire * annual salary = Total worth or Total Value.

In this example,

Years left to retire (25) * annual salary (5 lakh) = 1, 25, 00,000 (Total Worth or Total Value)

John’s total worth is 1.25 crore, this means he should have at least this much insurance in order to protect his family from loss of income. When a person dies, family face two losses 1) Emotional loss – which cannot be measured 2) Financial loss – can be measured using above formula.

Hence, John should buy a policy which covers him for this amount as his family will lose 1.25 crore, If something happens to him at this time or age.

Now Important question which policy can fulfill his expectation. Endowment or Term plan

Well, if John decides to buy endowment policy, he cannot afford the premium that needs to be paid for Endowment plan, whereas Term plan gives him that flexibility to pay less premium and take the maximum cover for life. Because at the end….”Insurance is Protection.”

Black Money or Black People ?

After demonetization of 500 and 1000 rupee note, now everybody is thinking about quantum of black money existence in Indian economy, how much reverted back into system and how much of it, is actually destroyed ?

Well, it is really difficult to share exact figure even for Government of India as it is such a big nation after all. Also to put this in simple way is that black money does not keep its footprints, it is untraceable. Hence, giving a figure is not justifiable.

We do hear that 

• Black money is converted in white after demonetization.   
• Most of Jan-Dhan accounts are flooded with black money
• People are charging 30 % to 50 % commission to change it to white currency.
• Some of the bank branches are also involved in this money laundry.
• Some burned their black money, some disclosed their black money
• And Black money found floating in Ganga river.

One thing is now confirmed that above statements backs the existence of black money, and its movement shows that it has affected black money holders.

India is the largest democracy in the world by number of People involved in electing the government. And India also has well organized system of Democracy at all levels. We have the government at the Centre chosen by the people as well as the Government at State level is also elected by the people. It’s the people who make the country and it’s the people who destroy the country.

Money is tool, if it is used wisely. It will help you reach heights of success, but if not used wisely, it will destroy you. It’s a “two-edged sword”.

Hence, there is nothing called “black money” or “white money”. Money does not operate on its own. Either it is used with good motive or bad motive. Motive drives money.

And we all know who have motives? Yes, you are right.

It’s the people who have motives. Knife is not dangerous. It helps you to cut vegetables, but if the same knife is handed over to Monkey. The same knife becomes dangerous. Therefore, black money and black people both are equally responsible.

What we want?

India is multi-ethnic, multi-cultural, multi-religious nation. It is united in diversity. India is land of opportunities, but only time will decide whether these opportunities are for Indians or for outsiders.

And being wise Indian, if we do not wish to let time decide it for us. We should start working on our values. Only a value system creates a character. And once it is set right, there is nothing can stop India to become a "world leader".

Corrupt mindsets will always be there in this journey of becoming a “world Guru”. If we cannot eliminate them, we can minimize them. Hence, current demonetization is considered as the first dose of medication.

India is a place of Gurus and philosophical knowledge. We have been talking about how to be happy, how to live peacefully and India will keep imparting its precious knowledge; there is no doubt about it. Indian Gurus have been addressing the behavioral issues. It’s an ongoing process.

Now is the time to eradicate means which is so called, “Black money” or “untraceable money”.

After all, we all want a nation, which is powerful yet peaceful. A nation which thinks of its citizen’s prosperity, equality first.