Money matters

Amit Saxena, 55, a human resource person wants to keep himself well insured. This, in spite of the fact, that he has discharged most of his obligations like sponsoring his son's US education or paying off his home loan.

Besides, he has done well by accumulating a sizeable corpus for his retirement and other contingencies. At present, he is paying a considerable premium of close to Rs 2 lakh a year for his life insurance policies.

When asked about the sizeable insurance, he replied that his bank, where he is a priority banking customer, had suggested these policies as they would provide good cover, return 25 per cent and also, give tax benefits.

What is surprising, that even though he has amassed sizeable wealth, he continues to play a high amount of money on insurance premiums.

There are a lot of cases like this where after crossing the age of 50 years, people tend to buy expensive insurance because there is that fear there would be a drain on the financial resources and stress on remaining members, if you were to fall ill or die.

But most people tend to forget that the expense on buying insurance is by itself a financial drain, especially at an old age.

However, before going into a buying spree, you need to ask yourself a basic question - Do I need this insurance policy? Answering this question correctly is really important.

While there is no silver bullet or a general answer here, but the key point is it's important that you look at your overall financial position first.

And when you do so, take a careful look at the responsibilities that you have to discharge like education of children, any loans that need to be paid or any such pending expenditure that you have to make.

It's important to remember that as you grow older, your need for life insurance goes down if you have saved well.

Here are some basic questions you need to answer

What are my liabilities?

What funds do I have for dependents?

What is my corpus and liquidity?

Once you answer these simple questions, evaluate your responses and check whether you come under any of these situations

I. No liabilities. Enough assets for contingencies and your dependent.

II. No liabilities, but not enough assets.

III. Have liabilities. Also, not enough assets for self and dependents.

IV. Have liabilities, but have assets as well for self and dependents.

Situation I - Congratulations There is no need for any life insurance for you.

Situation II - It's better that you buy life insurance, but do a complete analysis before you do so. Calculate the shortfall in terms of accumulated assets and buy a pure term plan accordingly.

Situation III - You certainly need life insurance. Get one ASAP.

Situation IV - Do a detailed analysis of your situation to check whether liabilities are minimal or significant. If liabilities are minimal and cannot jeopardise your family's financial health, then you might not need life insurance. However if liabilities are sizeable, you should opt for life insurance.

Now that you are aware of what needs to be done, take a call on the cover that you should purchase. Make sure that you buy a sizeable cover to take care of your liabilities and family's income needs. Finally remember to separate investments and insurance and just opt for a simple term plan.