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Pay your monthly hafta

There's one hafta that's as important as your monthly SIP. Ignore it at your peril


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Investors throughout India are increasingly experiencing the power of mutual fund SIPs. Money invested through SIPs has trebled over the past three years to hit 5000 crore a month. But the best made SIPs can be undone if you ignore your other essential monthly payment - your TIP.

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A TIP or a Term Insurance Plan protects your dependents in case of your death. It pays out only if you die and in no other case. This might seem like a poor deal until you consider the fact that not being paid means you're still alive. It's also incredibly cheap. For the average Amar, Akbar and Anthony, a 1 crore life cover can cost less than 1000 rupees a month.* This isn't 1 crore, after 10 years or 1 crore after 20 years and when the Nifty hits 30,000. If you die tomorrow, your family will get 1 crore tomorrow. To top it all, your premium is deductible up to Rs1.5 lakhs under Section 80C of the Income Tax Act.

When should you TIP?
You should buy TIP every time you think of buying a SIP. But buy Term Life Insurance only if you have financial dependents such as your wife and children. This is not an investment.

How much should you TIP?
The size of your term life insurance depends on many factors. It depends on your annual income, your family's monthly expenditure, their goals and your age, among others. Don't throw down your pencil and give up, just yet. We're giving you two simple 'Rules of 10'. One, for every 100 rupees of SIP, spend 10 rupee on the TIP. Two, ensure that the life insurance cover you get from your TIP is about 10 times your annual income.

Let's look at a quick example. Say you have an annual income of Rs 5 lakh and you do a monthly SIP of Rs 5000. According to the two Rules of 10, either your life insurance cover should be Rs 50 lakh or your TIP should be Rs 500 per month.** Simple, isn't it?

An Essential Extra
Some of us have accumulated enough property and savings to dispense with the need for term life insurance. Some of us have also made legally valid wills to make sure that the process of inheritance is smooth. However claims from banks if you have loans and creditors can bring all of this effort to naught. This not only affects businessmen who have creditors but practically anyone with a loan, including those doing a job. Here's where Term Life Insurance has another advantage - policies bought under the Married Woman's Property Act are held in trust for the wife and/or children and cannot be attached by a court to settle legal claims against you. In other words, if you have taken loans, your creditors cannot take your term life insurance money from your family. However to do this, make sure the Act applies to your policy before you buy it.

How to buy?
Buy your term life insurance policy online. This is both cheaper and more convenient than buying it from an agent (even if he is your uncle). It is also easier to keep track of.

Use the calculator below to get an idea of insurance premiums.

*Assuming a 30 year old male with term insurance cover till the age of 70.

**Actual insurance premiums will differ according to factors such as your age, where you live etc. Use our rules as your broad guidelines rather than absolute prescriptions. Remember to shop around for the best deal and read the terms and conditions before buying.

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