When we buy Insurance, the normal thinking is that the family will get a lump sum amount in our absence. The solace is that they would be having enough of money, which keeps us satisfied. But this is not true. Have we thought that with the falling interest rate scenario and inflation, how they will use that money for their day to day expenses? These are important points to consider before insuring ourselves.
How Inflation affects our Insurance
We buy Insurance with primary objective that our family should be capable of managing their own expenses with the money they get from Insurance. The normal calculation is keeps today’s expenses in mind. However with inflation, their monthly expenses will increase like higher cost of grocery items, school fees, travelling expenses and so on. Even EMIs pile up and there are ever increasing Rentals for accommodation.
Apart from monthly expenses, they might also need certain amount for specific situation such as when someone falls ill or the house needs repairs, college, higher education, marriage of some near and dear one…. I hope I have explained well the need of more money than what you have thought for. However, we should carefully think about this targeting the same standard of living for our family with or without ourselves.
How interest rates affect our Insurance
A normal phenomenon seen is that the entire lump sum is deployed into fixed deposits with monthly income option. The capability of handling finances and managing money effectively is also a key factor. I remember the days when interest rates in their cycle peaks out at something like 11-12% however in 3-4 years, we saw the peaking at 9 to 9.5%. Currently, they are in the range of 7 to 7.5%. In such a scenario, the monthly income will fall further for the family. Not only this, the risk of interest rate volatility will start affecting from bad to worse to an ever increasing household budget.
Choosing a Term Plan
Our Term Life Insurance Plans should be smart enough to cover these factors. An ideal plan should be a lump sum amount for repaying loans and bearing unforeseen expenses along with monthly income increasing yearly. One such plan I came across is from Max Life Insurance namely Max Life Online term plan. This plan comes with three options. The first one that gives a lump sum amount to family, second one gives the lump sum amount with monthly income and third one is the most interesting. It provides a lump sum amount and a monthly income increasing by 10% every year. The difference in the premium is also not that much and easily affordable.
Apart from this, one must check on the claim settlement ratio, which tells about the quality of Insurance company. Claim settlement ratio is a percentage of amount settled out of total claims filed with company. The higher ratio means that more claims are paid. Normally, claims are rejected only in cases where proper declaration are not made or false facts are stated in the forms while taking Insurance. So, it is always better to be truthful and not to hide any facts for seeking lower premium. Max Life insurance has paid out INR 1648 crores paid out in claims till date 30th Jun 2016. #MaxLifeTermPlan
One must remember that Insurance is an important financial plan that the family looks for after the death of earning member. At that time, the loss of family member is a great loss and worries of money and earnings add a lot more weight to their issues. Therefore it becomes a prime responsibility to protect them and take care about them with or without you.
Hope, this article helped you in better understanding about the way you think about your Insurance needs, If it does help you, please share it with your friends and relatives also.
