The other day, I was talking to a friend of mine, Sunil (name changed),when he told me that he is looking for a good life insurance policy for his father, who is 65 years old. Sunil also said that most of the policies do not cover his father and others demanded a very high premium. Being a person closely associated with the financial industry, I knew that this would be obvious and told him so. And then I asked him, “why do you want to buy a life insurance for your father?” To my great surprise, his answer was, “Because I want my Father to live upto the age of 100 years”. Noble thought, indeed, probably we all would want our parents to live upto that age. But the question is how a life insurance policy would ensure that he lives upto 100 years?
Another story, one more friend of mine, Deepak (name changed) was worried as his wife Roshni, who is a homemaker, wanted him to buy a life insurance policy for her. Deepak was aware that taking life insurance on a non-earning member is not a wise decision. But Roshni insisted that, If Deepak loves her, he should buy a life insurance policy for her. If he doesn’t, it means it does not matter for Deepak, whether Roshni is there or not. Again, the question that remains unanswered is, how can a life insurance policy save your life ? How can it ensure that you live long ?
Do we really understand it?
From the above two stories, I could conclude that most of us don’t really understand the meaning of risk and the meaning of insurance. We think that an insurance cover would act like some “Protective Shield” (Don’t know if this word coincides with some insurance policy name) around us which would save us from death.
The Possible Culprit!
When I tried to track back, I came across a few TV commercials, who have mis-communicated the meaning of life insurance to the audience. For example, there was an ad on TV, wherein an animated character is being chased by a tiger. While running, the character pulls out a laptop from his bag, fiddles with a few keys and his life insurance premium is paid. He turns back and shows the e-receipt to the tiger, and the tiger turns back.
Now, although it might be a good ad to watch for entertainment purpose (because of the happy ending), this is not the meaning of life insurance. If sometimes we are really trapped in a life threatening situation, we cannot relax just because we have a life insurance. Our life insurance policy just means that, it will provide “X” amount to our family, in case something was to happen to us. But, you would agree with me on this one, our family would be much better-off with we being there, than the insurance amount.
In a Nutshell.
So for both, Sunil and Deepak, it is advisable to take a health insurance (rather than a life insurance) for their father and wife respectively, so that in case of some health problem, they do not have to halt the treatment because of finances. This, in a way, could result in a longer life for them. Again, this does not mean that by taking health insurance, it will be ensured that they will have a good health. They would still be required to take good care of their health. “Insurance” would just protect them against financial losses in case of an unforeseen event.
Also,when it comes to buying life insurance, it should always be taken for the earning member of the family. And that too, a term insurance, so that a higher cover can be taken a low premium and the family is well protected against the risk of an untimely demise of the earning member.
We look forward to your feedback and comments on the above article.
(The views mentioned in the article are personal opinion of the author. Readers are advised to use their own judgement and consult their financial advisor before taking any financial decisions)
The author Prof. Saurabh Bajaj (BE, MBA, FRM) is Chief Investment Planner with Nidhi Investments, Mumbai.He may be contacted on saurabh@nidhiinvestments.com if you have any questions.
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