Life Insurance

Insurance

Life insurance provides financial protection to dependents upon the policyholder's death. The only type of life insurance worth buying for pure protection is term insurance. Investment-linked variants (ULIPs, endowment, money-back) are inferior to buying term + investing separately.

In detail

Types and recommendation:nTerm insurance: pure protection, highest cover at lowest cost -- BUY THISnEndowment/money-back: insurance + investment, low returns (4-5%), high premium -- AVOIDnULIP: insurance + market investments, high charges -- AVOID (buy term + MF instead)nWhole life: insurance for lifetime, expensive -- rarely needednnCoverage need: 10-15x annual income + all outstanding loans. Buy online directly from insurer (30-40% cheaper than offline agent).

Formula

Coverage needed = (Annual income x 15) + Outstanding loans

Real-life example

🇮🇳 India example

Rohan, 30, earns Rs 12L/year, has home loan Rs 40L. Coverage needed = Rs 12L x 15 + Rs 40L = Rs 2.2 Cr. Online term plan: Rs 2 Cr cover for Rs 12,000/year. LIC agent offers endowment for Rs 1.5L/year giving only Rs 25L cover -- 6x the premium for 12x less cover.

Frequently asked questions

How much life insurance do I need? ▼

10-15x annual take-home income + all outstanding loans + child education corpus if needed. For Rs 12L income and Rs 30L home loan: at least Rs 1.5-2 Cr cover. Review every 5 years as income and liabilities change.