Swapneel Shah

swapsshah in dreams!!!

My Life Insurance plan…

with 5 comments


I saw the Kya aapko Kam Insurance Lene ki Bimari (KILB) add campaign by AEGON Religare and I thought of writing some of my views and experiences that I have had with Insurance… Of course, I am NOT gonna write on topics like Why Insurance? Which Company? How much? should one go for money back or pure insurance? etc. I guess there are already 100s of  articles on web for them…

This is my 4th fiscal where I am adding on insurance policies to my portfolio. When I thought of taking insurance, I had lot of surfing throughout the web that gave me numerous ideas and confusions… I decided to go for a Money Back policy over pure insurance… So those against Money Back policies may drop reading here… This write up does not consider Money Back policies over Pure Insurance polices or vice-versa…

So I decided on Money back policy and did a custom plan to take a money back policy each year so that my returns from earlier policies in turn pay my next premiums… Also after a initial bust in the premiums the rest years premiums remain constant and fairly low… Lets take an example… Suppose I take Life Insurance Corporation‘s (LIC) Jeevan Surabhi policy with Policy term as 20 years and policy paying term as 15 yrs for 4 lac at the age of 24 (year 2006). So the numbers look like this-

Year Age JS Return Total Total Total
400000 P Premium Returns Receivable
P
2006 24 35676 35676 0 -35676 *
2007 25 35676 35676 0 -35676 *
2008 26 35676 35676 0 -35676 *
2009 27 35676 35676 0 -35676 *
2010 28 35676 100000 35676 100000 64324
2011 29 35676 35676 0 -35676 *
2012 30 35676 35676 0 -35676 *
2013 31 35676 35676 0 -35676 *
2014 32 35676 100000 35676 100000 64324
2015 33 35676 35676 0 -35676 *
2016 34 35676 35676 0 -35676 *
2017 35 35676 35676 0 -35676 *
2018 36 35676 100000 35676 100000 64324
2019 37 35676 35676 0 -35676 *
2020 38 35676 35676 0 -35676 *
2021 39 0 0 0
2022 40 100000 0 100000 100000
2023 41 0 0 0
2024 42 0 0 0
2025 43 0 0 0
2026 44 0 0 0
2027 45 736000 0 736000 184000
535140 1136000

Notice the asterisks (*), these would be the years where my total money going from my pocket is high… This is how most of us, take a policy… And in-case if in any of these asterisk years, if your personal finances get disturbed, then you are at a risk… And the probability of this risk hitting is quite reasonable as the number of asterisks are more…

So instead of this, I took the same cover across 4 yrs… I divided the 4 lac policy into 1 lac each and took it over 4 years… Now the numbers look like this-

Year Age JS JS JS JS Return Return Return Return Total Total Total
100000 100000 100000 100000 P Q R S Premium Returns Recievable
P Q R S
2006 24 8919 8919 0 -8919
2007 25 8919 8958 17877 0 -17877 *
2008 26 8919 8958 9002 26879 0 -26879 *
2009 27 8919 8958 9002 9050 35929 0 -35929 *
2010 28 8919 8958 9002 9050 25000 35929 25000 -10929
2011 29 8919 8958 9002 9050 25000 35929 25000 -10929
2012 30 8919 8958 9002 9050 25000 35929 25000 -10929
2013 31 8919 8958 9002 9050 25000 35929 25000 -10929
2014 32 8919 8958 9002 9050 25000 35929 25000 -10929
2015 33 8919 8958 9002 9050 25000 35929 25000 -10929
2016 34 8919 8958 9002 9050 25000 35929 25000 -10929
2017 35 8919 8958 9002 9050 25000 35929 25000 -10929
2018 36 8919 8958 9002 9050 25000 35929 25000 -10929
2019 37 8919 8958 9002 9050 25000 35929 25000 -10929
2020 38 8919 8958 9002 9050 25000 35929 25000 -10929
2021 39 8958 9002 9050 25000 27010 25000 -2010
2022 40 9002 9050 25000 18052 25000 6948
2023 41 9050 25000 9050 25000 15950
2024 42 25000 0 25000 25000
2025 43 25000 0 25000 25000
2026 44 0 0 0
2027 45 184000 0 184000 184000
2028 46 184000 0 184000 184000
2029 47 184000 0 184000 184000
2030 48 184000 0 184000 184000
538935 1136000

Here you can note that the number of asterisks have gone down from 12 to 3! And the net amount going from my pocket is quite low, constant and manageable… Also the risks (asterisk) are taken care of in the initial years, where one can devote more funds as one has less responsibility and can save more (spouse, kids, etc)… If you have Girl Friend(s), then God save U!!! 😉

Some passing tips:

– Also breaking the policy into smaller chunks gives you an option to drop some premiums in case of a problem, and continue with part of the insurance policies, instead of going without cover, if you cannot pay the complete premium for a single big policy…

– Further spanning the policies taken over a few years gives you more time of your changing insurance needs so that you can go for lower/higher covers in subsequent years…

– I also made sure that I have the dates and premium installments (yearly, half-yearly and quarterly) scheduled in such a fashion that I have to pay some premium each month… This helped me make regular monthly payments and not bother about a chunk installment that lies 5 months down the line from today. You can also go for Electronic Clearing Service (ECS) if making monthly payment manually bothers you.

– Note: Most of the agents will not agree to this plan, as they don’t want to let go a big chunk at the start, and get it distributed over years… I too found it difficult to convince my agent; though later he appreciated the strategy and also recommended to few of his clients…

Swapneel*

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5 Responses

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  1. Well that was nice article. It puts forth nice way to strike balance with good cover between EMI.

    Sandeep Kathe

    August 15, 2008 at 2:33 pm

  2. Good Strategy! I am implementing similar one, after Swapneel showed his to me, a year back.

    Piyush

    August 15, 2008 at 4:13 pm

  3. @Sandeep, @Piyush: Thanks Guys!

    Swapneel Shah

    October 9, 2008 at 8:22 pm

  4. As per the thumb rules, every person must have an insurance cover of 5 times to his/her annual income. That is if you are earning 5 lakhs annually, you should take an insurance cover of 25 lakhs at least. I guess more than 90% of our country men don’t have this kind of cover. So almost all of us are under-insured. You can get this type of cover very cheap with term insurance.

    The strategy pointed out by Swapneel is wonderful but it from the investment angle. Add a term insurance flavor to it and you can feel financially secured for years to come.

    Vishwas Gupta

    October 21, 2008 at 5:18 pm

  5. @Vikas: Thanks for visiting the blog and adding your views.

    Swapneel Shah

    October 21, 2008 at 9:21 pm


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