Insurance Decoded

The biggest mistake Indians make with insurance is buying it for tax saving or returns. Insurance is NOT an investment. It's a safety net.

The rule: Buy insurance to protect against financial disaster. Invest separately for wealth building.

What insurance does: If something bad happens (death, illness, accident), the insurance company pays so your family doesn't go broke.

What insurance doesn't do: Make you rich. Most insurance policies give terrible returns compared to mutual funds.

1. Term Life Insurance 🏠
- What: If you die, your family gets a lump sum
- How much: 10-15x your annual income
- Cost: ₹500-800/month for a ₹1 crore cover (if you're 25-30)
- When: As soon as you have dependents
- Example: 28-year-old, ₹10L salary → ₹1-1.5 Cr term plan → ~₹700/month

2. Health Insurance 🏥
- What: Covers hospital bills
- How much: ₹10-25 lakh minimum (₹50L+ in metros)
- Cost: ₹8,000-15,000/year for family floater
- When: Immediately — don't wait
- Note: Don't rely only on employer health insurance. Get your own.

3. Motor Insurance (Third Party) 🚗
- What: Legally required. Covers damage you cause to others.
- Cost: ₹2,000-5,000/year for cars
- When: As soon as you buy a vehicle

1. Money-back policies — Low returns (3-4%), high premiums. You're better off buying term + investing the difference.

2. Endowment plans — Same problem. The 'guaranteed returns' are actually lower than FD rates.

3. ULIPs (Unit Linked Insurance Plans) — High charges (2-3% annually), lock-in of 5 years, mediocre returns. Insurance and investing should be separate.

4. Personal accident insurance — Usually redundant if you have health insurance and term insurance.

5. Car insurance (comprehensive) for old cars — If your car is 7+ years old, the premium may be higher than the car's value. Switch to third-party only.

The Patels — both aged 32, two kids, combined income ₹18L/year. They were paying ₹45,000/year for a money-back policy and ₹12,000/year for a ULIP.

Our recommendation:
- Cancel money-back policy (surrender value: ₹60,000 — painful but necessary)
- Cancel ULIP (after lock-in)
- Buy: ₹1 Cr term insurance each → ₹14,000/year
- Buy: ₹20L family floater health insurance → ₹15,000/year
- Invest the savings in SIPs → ₹28,000/year

After 20 years:
- Old plan: ₹57,000/year × 20 = ₹11.4L invested → ~₹15L maturity
- New plan: ₹29,000/year insurance + ₹28,000/year SIP → Insurance coverage + ~₹22L from SIPs

Better protection AND better returns.

1. Buy early — Premiums increase with age. A 25-year-old pays half what a 35-year-old pays.

2. Buy online — Online policies are 20-30% cheaper than agent-sold ones.

3. Don't mix insurance and investment — Buy term insurance for protection. Invest in mutual funds for growth.

4. Read the fine print — What's excluded? What's the claim process? What documents are needed?

5. Review annually — As your income grows, increase your term insurance cover.

6. Use our calculators:
- Term Insurance Calculator
- Health Insurance Need
- Life Insurance Need