A few weeks ago, the reserve bank of India released ‘Financial Stability Report for 2025’.
Along with many interesting facts, one of the findings about ‘Life Insurance policies’ caught my attention!
“Life insurance policies payouts are increased to 6.3 lakhs cr in 2024-25. Out of this, about 37% payouts have happened due to early withdrawal claims and surrender claims’.”
Well, Life insurance policies are supposed to make a payout to policy holders at the time of maturity, death of the policy holder, at the end of stipulated money back period for money back policy or for a withdrawal on demand for ULIPs after their stipulated premium payment period ends.
Now, this report shows something worth considering!
Why there is high demand for withdrawals and surrender?
We can list some reasons as follows-
- Unsuitable life insurance policy:
- Policy purchase made without understanding right details
- Life insurance policy purchased just for the sake of purchasing it
- Policy purchase made just because some friend or colleague has purchased
When we purchase insurance policy with any of such reasons, eventually we find it ‘unsuitable’ to our needs. We either think premiums are high compared to sum assured we are eligible to receive, or it doesn’t serve the purpose of taking life insurance policy.
Instead of wasting our time and money on unsuitable policies, it’s better to think and choose the right one beforehand.
What is the need to select right and suitable life insurance?
The word ‘Insurance’ tells us about ‘assuring or protecting something which is precious’. Well, anyone’s life can’t be weighed in money terms and it is beyond precious. So, it needs to be insured well.
Dependents of the insured person need this as they are ‘financially dependent’ on him/her.
If unfortunately, the insured person dies, then after his/ her death, those dependents should live their life with financial independence with dignity. They should achieve their goals and also should maintain their ‘Standard of living’ throughout.
This very purpose of the life insurance is served by ‘Term Insurance’ only.
Under this policy, Insured person applies for a term insurance for a certain ‘term’ i.e. no of years. If the insured person survives the term, then he/she gets nothing in return. But, however, if the insured person dies during the term, then ‘nominee’ of the policy gets the sum assured in return.
This is the way it serves the very purpose of ‘Life Insurance’.
How to choose a suitable term insurance policy?
You need to choose Term insurance carefully after considering few basic checks-
- Who should apply for term insurance policy?
If you have any financial responsibility or liability then it’s important to have term insurance policy.
- Is it required to apply for term insurance policy even if we have the one provided by our employer?
Yes, if we have term insurance policy provided by our employer then also we should have term insurance policy in personal capacity.
- Who is the ideal insurance provider?
Apply for a term insurance policy from an established and experienced insurance provider.
- What should be the term of the policy?
Apply for a term insurance policy till your age of retirement or till the age where you need to carry your financial responsibilities.
- How much should be the sum assured?
Basic thumb rule is your term insurance cover = 10 times of your annual income.
There are methods of calculations such as ‘human value approach’ or ‘Need based approach’ which helps us arrive at suitable required term insurance cover too.
Our life , personal finance is different from others in many aspects. So, better not to copy ‘others’!
Lets be vigilant while buying this very important insurance policy.
