When not to buy Life Insurance?

The primary goal of buying a life insurance policy is replacement of future income of the breadwinner in the event of his death. Life insurance is vital for the future well being of loved ones as it helps them to cope with financial responsibilities in the absence of the earning member. While insurance is essential, it is possible that in certain situations, it is not required. Like for instance, if you do not own a car, you do not need auto insurance. Similarly, in certain situations, life insurance is not required or some people may outlive the need for insurance in their lifetime. Let us examine the possible situations in which insurance is not required to be bought:

  • No income: If a person does not have any source of income, there is no reason to buy life insurance at all. Sadly, people forget this simple fact. It is common to find life insurance policies being sold to non-earning members in the family. Housewives typically buy endowment and money back policies. Further, policies are being bought in the name of minor children. Child insurance plans are no different from the other traditional plans involving the investment component. Such products prove to be expensive, offering sub-optimal returns and do not serve any purpose for the child. The primary purpose of life insurance to cover for loss of income is defeated here.
  • No financial dependants: Your financial priorities change through various life stages. When you are single, working and have no dependants, you may not require a very huge life cover. As you get married and start a family, you will require a big sum assured which would cover for living expenses till your spouse’s lifetime, outstanding liabilities, if any, and your children’s education & marriage goal, etc. Typically, at the time of retirement, your liabilities are over, your kids are all grown up, working and capable of taking care of themselves. When you have no financial dependants, your life insurance requirement would cease. Some retirees commit the mistake of buying a life insurance policy during old age with the intention of investing their hard earned savings. They ignore the fact that the primary purpose of life insurance is not to provide investment income. They are better off investing in other liquid options like fixed deposits, recurring deposits, etc. If sufficient corpus has been accumulated to replace regular income in retirement, then life cover is not required in old age. Paying for insurance premium from retirement savings is thus a waste of money.
  • Super rich: There are people in this world who are so filthy rich that they have no idea what to do with the excess money! The first thing they do is buy a life insurance policy and pay premiums worth lakhs of rupees. They are easy baits for unscrupulous agents who earn hefty commissions by selling them policies. The fact is if you are rich and have accumulated enough assets which take care of your lifestyle, emergencies, liabilities and financial goals, you do not require life insurance at all. Instead of wasting money in paying insurance premiums, you can invest in real estate, equities to grow your net worth further.
  • Tax saving deadline: Insurance policies are popularly perceived to be a tax saving investment option. With limited time on hand as the deadline draws near to submit tax proofs to the HR department, people become vulnerable and get lured into buying life insurance policies from crooked agents. Endowment and unit linked insurance plans (ULIPs) are the typical products pitched to investors to take benefit of section 80C. Just to save tax in a particular year, investors buy policies to commit to paying premiums for 20-25 years. Such haphazard tax planning affects both their insurance and investment goals. Life insurance policies need to be bought with a calculated approach by assessing genuine financial requirement of the future. So avoid buying life insurance during the tax saving season.

To conclude, life insurance is essential for the primary goal of income replacement of loved ones. Buying insurance for all the wrong reasons can prove to be a costly financial mistake. So it is imperative to realise in what situations or during what life stage you do not require life insurance.

 



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