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If you're like most people, it's not that you don't
appreciate the value of life insurance. In fact, many people believe
they need more coverage. You probably wouldn't mind owning
additional life insurance. It's just that you don't want to
buy it. Thinking about buying life insurance, talking about buying
life insurance, discussing the reasons for buying life
insurance--all of this makes many people feel uncomfortable.
Here are just some of the reasons why you may be putting off
buying the life insurance you know you need.
There's no great appeal to
contemplating our own mortality. It's a subject we'd rather
ignore than address. The result can be inertia or denial.
type of policy is best, how
much we need, when and how benefits are paid, how benefits may
be taxed, and more. That's okay. It's not your job to know
everything about life insurance. That's the job of an
insurance professional.
insurance available. These
include term life insurance policies and various types of
permanent (cash value) life insurance policies. Term policies
provide life insurance protection for a specific period of
time. If you die during the coverage period, your beneficiary
receives the policy's death benefit. If you live to the end of
the term, the policy simply terminates, unless it
automatically renews for a new period.
life and variable universal
life insurance policies are offered by prospectus, which you
can obtain from your financial professional or the insurance
company. The prospectus contains detailed information about
investment objectives, risks, charges, and expenses. You
should read the prospectus and consider this information
carefully before purchasing a variable life or variable
universal life insurance policy.
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written by Vikram Kohli, 2007-09-09 13:27:12
Hello,
I have followed the comment trail, which, almost feels like a blog now
Here is a lenghty commentary on the real issue here. Let us take a moment to rationally think over the issue than becoming emotional about the concept. I am beginning this comment by proposing M. Nam as the case study in this case. He first commented on the article and I thank him for sharing his philosophy with us.
Note that Nam does agree that there should be a system to take care of those that are still alive, and, were dependent on the deceased. There is reference to ancient systems whereby society in general, or, sects of society decide the fate of the survivors. For me it evoked thoughts of the Sati system - when the husband passes away the surviving wife is burnt alive on the pyre. This is one way the spouse was taken care of. The problem with the proposed system is that it is a controlling system. That too externally controlling system based on somebody elses ideology.
Let's take an example of a very bad person - who drinks, smokes, is promiscuous, cheats people for a living etc. By some luck his family finds him a bride who unaware of his talents marries him. They then have 4 children - 1 son and 3 daughters. The children are gems - very bright, loving, obedient etc. The wife over the years has adjusted to the behaviour of the husband.
One fine day, the husband (sober) is travelling in his car and a drunk driver slams his truck into the husband's car. The husband dies instantly. What should be the verdict of the jury ? Why should the case go to a judicial system to decide the fate of the 5 survivors ? What harm did the 2 year old daughter do whereby her fate will be decided by the demised father's behaviour?
To the more important issue, the husband (on a rainy day) met a life insurance agent, or, a financial advisor who advised him to carry life insurance in case something happens to him. The husband getting older and somewhat repentful of his earlier mis-demeanors, decides to pay for insurance for his family. What right does Nam have to decide that the individual was a scroundrel so the surviving family does not deserve the policy proceeds ?
I feel that by the fact that the individual paid premiums of the policy, his family has EARNED the right to policy proceeds if he dies. The family, if able, should be able to decide their lives without undue outside interference.
This brings about another point. The individual is a Brahmin, and, has a close Baniya (business class) friend. The Brahmin's family trusts the Baniya family, and, wants help from them when the Brahmin passes away. Why should the Brahmin community overrule and make decisions?
I, also, would like to comment on the example of the samosas & skiing. I feel that no society has any right whatsoever, to decide how many samosas I eat, whether I ski, golf, or, coach soccer. I should be able to walk to work, or, bike, or, drive, even fly if I am able and willing. The point Nam makes is that there is risk associated with activities. I for one, want to decide on how to cover the risk associated with my activities. I may not appreciate Nam, and/or, some sect of society to determine the type of risk and associated punishments / rewards. I will eat 10 samosas if I want to, if my doctor says I am keeping healthy.
Financial illetracy is highly prevalent in Indian society since the financial systems are now developing. Many of us, who are originally from developing nations carry opinions based on our parents, and, their parents philosophies; not on the science of the concept. Example, it is okay to pay Gateway for assembling a computer, but, not okay to pay insurance company to provide protection. It is okay to get a bonus for extra efforts at work, but, not okay to pay an investment professional for his recommendations / work.
Lastly, let's not assume that our forefathers / mothers did not try various systems. What we see today are the systems that have withstood the test of time? Some changes / improvements are possible, but, lets not go back to the Sati system.
Cheers
Vikram
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written by Dwai, 2007-09-09 12:23:35
I think this discussion is a very lively one and some very interesting points have been made between the two perspectives in this exchange.
I for one do believe in the efficacy of Life Insurance from a purely existential viewpoint, from personal experience.
My father passed away in a freak illness suddenly when my sister and I were both merely students (she was studying her Masters degree and I was in my penultimate year in Engineering college). Like the millions of displaced families in post-parition India, my family fortune was in the process of being rebuilt. My grandfather managed to give my dad and my uncle reasonably good education but managed to only build one home in Calcutta, through sheer willpower and hardwork (after losing everything in the partition, literally a riches to rags story).
My father managed to give us a decent middle-class life and good values and education, but not much financial cushion since making the aforementioned happen exhausted his life savings. When he passed away in a sudden and unforeseen mishap, my mother, sister and I have seen the value even a rudimentary life insurance offered. Had it not been for the life insurance and the support system offered by friends and family, we would have been devastated, probably would have had to give up education, reconciled to a compromised existence.
Yes, it might not always payoff, and the insurance companies do make getting insurance a pain in the US. But in India, for instance, the LIC was (probably still is) an excellent way to have forced savings.
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written by Sreeparna, 2007-09-07 11:50:24
You have given a very idealogically apt examples. However they are not very practical solution.
>
Where does the rest of the money live it does not go to the family?
Can you imagine how convoluted the system will be if one has to decide.....>>
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written by P. Desikan, 2007-09-06 22:36:34
In a society which breeds leaders out of film personalities and then from their offspring generation after generation, Moornam's virtuous stand could be very hard indeed to sell.
Regards. Partha.
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written by MoorNam, 2007-09-06 14:18:55
Hatimtai,
Let me try...
The system has to be made similiar to occupational "insurance" that existed for millennia in all societies. There are two characterstics to it:
1. Money is never given to the surviving spouse/children - only debts and expenses are paid.
2. Death due to non-professional reasons is not always considered applicable for benefits. Let's take the example of a fisherman: Their community helps a fisherman's family if he dies while he's out at sea fishing. But if he visits a prostitute and dies of AIDS, their family gets nothing.
So, as a software developer, there should be common ailments that effects this profession: Stress, Carpal tunnel syndrome, backache etc etc. Death due to these should be covered under life insurance - but money should not be paid to the beneficiaries. If the dead man had a mortgage, the insurance should cover mortgage payments until the survivor sells the house. If children are studying, it should pay their fees/books as long as they maintain certain grades. It should pay their grocery bills (by taking the mean of the last X years), electricity bills etc. The moment the surviving spouse remarries, all benefits should stop.
However, if the software developer dies in a skiing accident, the beneficiaries get nothing. If he dies in a car crash, that should be covered by the auto insurance - not life insurance. The owner of the policy should take periodic health checks - as much as monthly. If he changes his lifestyle (starts smoking) his insurance should be cancelled. If he's caught driving drunk, or is being unfaithful, his life insurance should be cancelled.
This way, the person as well as the beneficiaries also have some responsibilties and have to make certain sacrifices. Nobody gets anything for free.
M. Nam
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written by Sreeparna, 2007-09-06 13:35:55
In the hindside, if any calamity strikes, i.e. aloss of one's parent's life, it could benefit the child. I don't think it will be in the category of gambling, or gaining that money when that child has not contributed to the society yet. I do not agree that any such analogies work here. A child who is dependent has every right to have a good future, and it is a parent's job to ensure it, as much as possible...
Crime around insurance is also true, and I agree with Vikram that in any system, misdemeanors will find a way to commit crime and misuse system!! However, one builds a system not anticipating that one may misuse, and people tweaks system when they find holes in them.
Partha and Moornam, just out of curiosity, can you suggest a better system one can use that can be analogous to life insurance?
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written by MoorNam, 2007-09-06 09:14:08
Unfortunately it looks like you've taken my note personally - I understand it is hard not to when someone is questioning basic premises.
I get that life insurance is nothing but risk distribution and mitigation. However, when a system promises security without appropriate responsibility, it creates a moral hazard, which is what life insurance has become.
Not just Japanese rice farmers, but societies all over the world had risk mitigation strategies to take care of their families. But all these were occupational risk mitigation schemes. Kshatriyas had commonly pooled funds to take care of dead soldiers' families, and also to provide for soldiers who had their hands or legs chopped off during war. Vaishyas had commonly pooled funds for traders who had to travel long distances in hazardous circumstances. I have no problem with these, because with rights came responsibility (and thus, loss of privacy). Nobody got something for nothing. Kshtriyas had to serve part-time as doctors (without any monetory compensation). Vaishyas had to travel in teams, and households were shared with very little privacy. Like most communal associations, individualism took a back seat for the common good.
I understand that in absence of community, life insurance provides a cushion for a family. The problem with life insurance is: there is no restriction of behaviour. Nobody can prevent you from having a third helping of samosas (thus affecting your heart). Nobody can question you having an affair (thus increasing the chance of STD related death). But your payout is guaranteed! Rights without responsibility. Something for nothing.
My father had life insurance for a couple of decades. So do many of my relatives. I know that it is very scary to leave your family without any wealth, and I understand why people do it. However, this scheme creates a moral hazard and will not stand the test of time.
M. Nam
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written by P. Desikan, 2007-09-06 01:20:31
A passionate defence, Vikram! Well done!
Business organizations and profit oriented middle men are of course inevitable.
One hundred percent self sufficiency is not a characteristic of the common man, who needs agents to look after most of his requirements, while he pursues his chosen vocation and is able to pay for services available to him. Therefore there will be chit funds, retail selling, insurance and other similar activity which are of course not charitable organizations.
Some people exercise their options of using/ or not using some of these facilities depending on their pet likes/dislikes. For instance there are people who buy only plastic footwear, because they think about animals being killed for leather and others who will not buy anything made of plastic because of environmental considerations.
No business is a crime, no middleman-activity is a sin, since most take only fair profits to keep going or a little more.
Moornam is entitled to focus on the gambling element in insurance and save for her dependents in other ways.
As I said even before, Vikram, your blog is extremely useful to the general client of the life insurance business.
Regards. Partha.
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written by Vikram, 2007-09-05 23:55:48
Guys,
No offence, but, did you just arrive from outer space, or, unfroze in one of the poles. For millions of years man lived in jungles, hunted or was hunted for food, why don't you try that ?
Let me straighten some facts around your comments
1) The concept of insurance was traced to centuries ago in Japan. Not 50 years ago. Rice farmers were required to transport rice bags from the farmlands to the produce markets via waterways. Every season some farmers had the experience of their boats capsizing and they losing all the produce. This caused severe distress to the farmer and his family. They worked out a way whereby no farmer would carry his entire load in one boat. So a boat that could carry 100 bags, would have these belong to 50 - 100 different farmers. If a boat capsized the loss to any individual farmer would not be greater than 1-2 bags. So no farmer would be devastated because each of the other farmers boats would contribute 1-2 bags to the farmer who lost.
2)Gambling (if this is what you think the above is) is considered bad by some because it may result in large gains to the gambler who may then enjoy the fruits on his non-labor. This sounds like my great grandma who did not understand the concept of risk. Eg, I am a VC and I fund a start-up called Cisco many years ago. The company grows and contributes to global technology, hires tens of thousands of employees, creates tremendous wealth for other investors / workers, improves the lives of millions. What would you consider as fair compensation to the individual who risked all his money, and, did no work ?
3) Yeah, the insurance company is a business entity and earns from managing the insurance premiums. What would you say to an engineer who is educated by a noble professor paid by his/her parents, who then negotiates top dollars for putting his knowledge to use ? A farmer who grows a crop, then, charges money from hungry people to eat the fruits.
4) Worldcom CEO committed a crime, Tyco CEO also did, and so did Enron management. Should we consider technology, diversified electronics and utilities to be bad things ?
I would end my comment on the note that I am married and have two school going children. Life insurance is one of the best security that we have for the family. If one of us parents died and the other had to bring up the children, and, pay for their education, then, insurance would not feel like a great gamble would it. God forbid, if both parents died, ...
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written by P. Desikan, 2007-09-04 23:12:24
I am not a great fan of Life Insurance, in which even the gambler wins only when he loses-, his life, nothing less.
But I am writing here to show my amazement and true appreciation of a noble and wise analysis of the whole issue. Insurance, you have made me see,is indeed disguised gambling, apart of course being the money spinner it any way is for the insuring organization. Such motivation is true of all other well organized business as well.
Hi Vikram, this is not to detract from the value of your useful blog to persons looking to life insurance as an option.
Regards. Partha
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written by MoorNam, 2007-09-04 12:34:19
I'm going to have to strike a discordant note here...please don't take it personally.
I don't have life insurance - but it's for none of the reasons that you mentioned above. I don't have it because I don't think any person should get something for nothing - even if it is a wilful transaction. This is the same reason I don't gamble/play the lottery.
I consider life insurance to be a "reverse lottery". A lottery is where a bunch of people (millions) put in money with the hope of getting money for nothing (but good luck), and a handful of lucky ones get the proceedings because they are lucky to be in the right place at the right time. The lottery runner, like the casino, always wins a small portion of the proceedings.
A life insurance is where a bunch of people (millions) put in money with the hope of NOT getting it back, but a handful of unlucky ones are in the wrong place at the wrong time (or with the wrong heart/lungs) and their family members get money for nothing. They have added no value to society, they have not raised the productivity of anything - yet they come into wealth. The insurance company, like the casino, gets a cut of the proceedings.
Where there is money without work, there is crime. Just as there is crime around casinos, life insurance is one of the primary reasons for murder and deceit all over the world.
For millions of years, to upto fifty years ago, mankind did not have life insurance and yet managed pretty well. Sure - people did not take unnecessary risks, but then that's a good thing.
You want to have a steady stream of income for your family? Save like an ant, get your spouse to learn to manage money, and invest wisely.
You want to pay of debts you leave behind? Don't get into debt in the first place!
You want to leave estate to your family/charity? Please do it with your own money - not with others' money (which is what life insurance is).
M. Nam
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It can be agreed that as a forced saving procedure and emergency-aid, insurance is what evolution has taught many middle income families to believe in. Till something more sati-sfactory comes along, I am sati-sfied that we do not necessarily have to recommend older procedures, especially the far-out example that has occurred to you, Vikram.
Regards. Partha.