Do you really need a life insurance policy?

Once I heard a sales person saying that – “Everyone should have at least two or three life insurance policy purchased on his name”. Then a question came into my mind that should we really buy a life insurance to cover our life or it was just a trick that salesman was using to sell his insurance products? Like me, many of us get confused when someone tells us that we should invest some amount of our saving in purchasing life insurance.

This article is the result of that movement when I got confused by the tricks of that salesman.

Buying life insurance policy for everyone, sometimes result in blockage of money. Why am I saying that? It’s because if we don’t have a need for life insurance then why should we invest in such a thing.

Now a question arise that what are the factors that determine whether we need to buy such a policy or not?

In response to this question I would say that a person should buy life insurance policy, only when he has:

  • Dependants after him,
  • To pay some kind of debt,
  • To incur huge expense on the education of his children,
  • To get his children married and so on.

Now on the other hand buying a life insurance does not make sense for a person who has not a family, who has not a single dependant after him, who has enough money to pay his debt.

Many of us argue that although they don’t have any need to purchase a life insurance but it is not a blockage of money. They consider life insurance as a good investment option.

I would like to tell that there are many alternatives of a life insurance in terms of investment option. Anyone who does not have any need for a life insurance; should not go for it only because it is a good investment option.

Investing in life insurance product is not wise because the amount of return, a person can earn from it, is equal to nothing as compared to other investment vehicles. The main thing is that insurance companies also invest the amount received from insured people and pay only a part of it as a return to these policy holders. So put it simply an insured person gets only a part of return earned by insurance companies from his capital.

Now, what should we do with this amount? Based upon the risk appetite of an investor, this amount can be invested in companies as owner’s fund or borrower’s fund. It simply means that if you have the capability to bear higher risk and want to earn maximum return from your investment then investment in equity fund is a good option. If you don’t want to take much risk with your investment then you can opt for safe investment vehicles such as debt instrument, mutual fund and so on.

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