Life insurance is a tool that provides financial cover for the policyholder's family in case of untimely death, retirement or disability due to accident. The purpose of life insurance is to provide for needs when there is loss of income due to these factors. I need a life insurance policy.
However, it is important to know under what circumstances one needs to buy life insurance. Overzealous agents will often persuade you into buying a policy you might not even need.
Here are five scenarios when you can choose not to take a life insurance policy:
Saving tax: Buying insurance for the sole purpose of saving tax is a strict no-no. People choose life insurance policies for this purpose as the money is parked in safe hands. However, while life insurance policies do offer tax benefits, it is best to look at other 'safe' avenues that offer tax-free returns, such as provident fund and National Savings Certificate, etc. Both NSCs and provident funds park your money with the central government, but the money is often locked in for long periods. One can also look at buying a pension plan, which requires you to pay a monthly or annual premium for a fixed number of years. After this period, the insurance company pays you a monthly pension for the rest of your life. Certain policies also set aside a part of your pension to a separate corpus for your family. The sooner you buy a pension plan, the lesser premium you have to pay for the same pension amount.
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No dependents: The beneficiaries of life insurance are usually the spouse, the children and the parents of the person who is insured. So if you are not married and your parents are not dependent on you, then buying life insurance really is not a priority investment destination.
No financial liabilities: Servicing a home loan is often the biggest cause of concern in families that have a sole earning member. However, if you don't have a home loan or any other financial liability, and if you have already set aside adequate funds for your dependents, then don't buy life insurance. Of course, you must first ensure that you have saved enough for your dependents.
No income: Buying life insurance after retirement or when you don't have a steady income is unnecessary. If you are dependent on the income of your spouse or parents or children, or if you have assets that can be more easily liquidated in a time of need, don't buy insurance.
If the premium is too high: Life insurance is closely linked with the age and health of the person buying insurance. Younger people have to pay lesser premium for the same cover as compared to older people. Also, people with existing illnesses, or those who have been previously hospitalized for illnesses related to smoking, alcohol, etc., have to shell out more for the same cover. Therefore, it's best to consider the cost of insurance in such scenarios. It's best to buy insurance at a young age, preferably late 20s or early 30s, when physical health is at its best and the premium is the lowest.