POSTED BY February 22, 2008 COMMENTS (69)ON
Life Insurance is nothing but the insurance covered for your Life. In case of death the sum assured is given to the nominees.Unfortunately in India, people see Life Insurance as Investment Product and not as an Insurance Product.
They don’t understand that insurance gives financial security to their dependents in case of there death, rather they see it as the last benefit provided to them and the most important thing for them it that they get the money back in case they survive the tenure of Insurance.
People are ready to pay higher premiums to Insurance Companies for a policy which gives them death and survival benefits like Endowment plans and Money back plans.
People are not ready to pay premiums if they don’t get any thing in case of surviving the tenure and that’s the reason why Term Insurance never became popular in this Country. That’s also the reason why many people are under-insured because of the high premium, they cant pay for higher insured sum.
Many People even don’t know that Term Insurance exists, the reason for that is their insurance agent never told them about it, because they get a very little commission on it unlike Endowment Plans.
Life Insurance is to provide a good enough cover to dependents in case of death. This is the only target of life insurance.
Rajesh is a salaried person with salary around Rs 20000 per month , He has 2-3 dependents like his parents and wife.
Rajesh can afford maximum of 10% of his salary as insurance premium outgo in a year.
He could have solved all of his problem if he would have taken a term insurance instead of Endowment Plan …
If he takes Term Plan , he can get a lot more cover in very less premium , and can invest the surplus money in much better investment avenues like Diversified Mutual funds or Equities.
So instead of Rs 24000 in a year he can just pay 9,000 can be covered for 30 lacs and that too for 30 years.
He can invest the extra 15,000 (24000 – 9000) in diversified mutual funds with good track record for next 20 years through SIP every month or yearly lump sum .
Equities in long term outperform all the investment options , In last 10 years HDFC taxsaver has given around 43% CAGR … that’s the magical returns one can expect … SBI MAGNUM Taxgain has done much better …
Let be on the safe side and be pessimistic and consider returns around 18-20% CAGR for next 20 years..
remember that this is for 20 years and not 30 years. In 30 years it will be much much more … for eg at 20% it will be 1.77 crores and 13 crores at 30%.
when he has taken Term Insurance He is in profit at any point of time
– If he dies early his family will get 30 lacs + some investments
– If he dies late , his family gets 30 lacs + his investments which has grown a lot now.
– If he survives , his investments are enough 🙂
The biggest thing to consider is that his Family is covered with good amount in case of his death , which is the main factor and sole idea of Life Insurance.
According to me , Endowment and Money back plans are investment products with a pinch of Life insurance in it. Term Insurance are the best , simple , “pure life insurance” and “must have” product.
I am not against Endowment policy or Money back Plans , but they have a different motive.
Don’t see what it takes from you , see what it gives you.
I would be happy to read your comments or disagreement on any topic. Please leave a comment.