Steps to buy insurance...

One of the major myths I deal with in the business of financial planning is that insurance is often misconstrued as an investment product.

The insurance industry is ever ready to oblige with fancy illustrations and creative selling techniques to add to this myth.

Were you aware that 65% to 80% of insurance policies are sold in the months of February and March? Whatever the exact figure is, the reason is not hard to find. People need to do their last-minute tax planning and opt for an insurance policy to take care of it.

Insurance companies, too, go berserk at this time with their advertisements, promotions and contests.

So, you have an essentially potent combination of a buyer wanting to save tax and running out of time and an insurance agent eager to meet his targets.

Do you need insurance? You don't need insurance if you are sufficiently wealthy. Let me explain.

I have a client whose net worth is around Rs 20 crore (Rs 200 million). He was sold an insurance policy by his friend and has been paying a premium of Rs 15 lakh (Rs 1.5 million) every year for a cover of Rs 60 lakh (Rs 6 million).

Don't fall for the sales spiel

I recently got a call from a private insurer. They wanted to sell my father, aged 65, a Unit Linked Insurance Plan. This is an insurance policy that also offers an investment like a mutual fund where you buy units. 

Be objective

Insure yourself based on the needs of your family. Do not view your premium as an expense.

When you buy auto insurance, you do not do so with the assumption that, if no damage is caused to your car, you will get some money back. The same applies to life insurance.

Always question your agent

A 57-year-old acquaintance was sold a policy on the pretext that he needed to pay the premium for only three years; after that, he could cancel the policy.

When I looked at the policy, the premium paying term was for 12 years. He could cancel it after three but would lose a lot.