All you want to know about Term insurance and Endowment policies with suitable examples

POSTED BY manish ON June 24, 2008 COMMENTS (98)

One of my good friend had a small argument with me, that she would not invest in Term Insurance, because she will not get any “returns” out of it. I believe investing in a term plan looked a very unprofitable thing to her as she never gets back the money she paid as “premiums”, if she survives.

Endowment plans looked nice to her, because they provide money if you are dead and even if you survive. You get back money as the prize for not dying !!!.

term insurance

 

With respect to Term insurance, she understood the fact that her family will get the money from insurance company in case of her death, but she was concentrating on the fact that she would not get back anything if she survives.

What is the return in that case? Nothing !!! and looked like some one is fooling you with a product called “Term Insurance”, where you are “investing” premiums to get nothing at the end.

Let me now tell why this happens and some give you some insight on this matter.

I have already talked earlier in my last post “Life Insurance and how to go about it”, about Term Insurance. Let me now take more deep dive into it and talk about the reasoning part.

I will first talk about fundamentals of Insurance and then talk about Endowment Policies and why are they popular, and what people don’t realize about them. and how Term insurance is the right thing for most of the people.

Basics of Life Insurance

What happens in a average family :

There is someone who earns and his family comprises of wife, kids, parents. if not all there is a subset of these family members. The head of the family earns and his family lives happily. All the expenses are met from the earnings of this main member, most of the time the husband. Now consider this person dies in an accident or for that matter because of any event.

What happens?

What happens to his family members other than the psychological trauma. If they don’t have money to take care for them selves, either some one from family have to take up the job and start working which may not be possible for them, or They have to decrease their standard of life to maintain the expenses.

They are now totally unsecured from future’s point of view. In short they are totally messed up, which should not have happened. I gave this detailed explanation for the circumstances because i wanted you to understand how bad can happen and proper measures must be taken care for this.

What is the Solution?

Adequate Coverage !!! this cant be compromised… You must have a backup plan which can give your family the same kind of income which confirms that they are not short of money in case the main earner is gone. If there are some debts like Home Loan, or any other tasks which need money apart from regular income, the cover must be good enough to cover that too..

why it is necessary to buy life insurance

For example :

Robert has a family expenses of 25,000 per month and there is a Home loan of Rs.25 lacs to be paid within 10 yrs. He is 27 yrs old. He has a wife, 2 kids and parents. All of them are dependent on him financially. He has investments of 5 lacs. Now in this case. In case he dies, who will take care of Home loan, how will provide them enough money to live life comfortably. They need 25k * 12 = 3 lacs per year.

Which they can get per month if they have 35-40 Lacs of money. If they put this in bank, they will get Rs.25,000 per month as interest which they can use. Considering inflation it will not be enough after some years, but lets leave it now for this example.

Add home loan of 25 lacs to this 40 lacs and what we come to know is that this family must be covered with minimum Rs 65 lacs . Rs 75-80 Lacs is a decent cover for this family. Now if he takes a cover of 80 lacs for his family, from that day he can happily live all his life without any tension , thinking what will happen if he is not there.

He will be attain peace of mind , and not be worried for it.

He must get a lot of internal peace because his Family is protected with a good enough cover to take care for them. And this is what you get in “return” from Insurance. No monitory return can give you more satisfaction than peace of mind.

So before doing anything else, his first step is to give adequate cover to his family and that’s the most important responsibility for him as a Husband, Father, Son. He must understand that this is not an investment for monitory benefit later in his life, but its for his family happiness and future.

Life insurance under MWP act is also one of the better option for married man. One point to remember and not forget is that this is the minimum cover required for family and anything less than this will be taking risk with family future.

Endowment or Money back Policies

Lets discuss the problems with these plans with respect to the above example.

High Premium : For an 80 lacs cover for say 30 yrs, the premium payable will be At least 2-2.5 lacs/year (this is a conservative figure). So now premium so high is not possible for anyone like Robert, so what they do?

They go with a kind of cover for which they can pay premium easily, can then they take cover for 5 lacs, 10 lacs or maximum 20 lacs. And guess who suffers in case of his death : HIS LOVED ONE’s.

It might also happen that they are compromising on a lot of small things which are important at that moment in time, like buying a bike for son, which they cant buy because of the insurance they have to premium, or some vacation they could have gone to with family, but compromise on that because of premium.

Money back at the end of the maturity is like a penny after so many years :

This is some thing most of the people overlook. They just see the numbers, 5 lacs 10 lacs or 20 lacs. And at the time of taking Insurance it looks good figure to them, because they see numbers, they dont see its value after many years, They don’t consider Inflation into account.

In case of above example, if Robert takes a cover of 15 lacs by money back policy, what happens if he survives the tenure. He gets 15 lacs at the end, Great Money after 30 yrs. Isn’t !!!

Lets see how great this money is? His monthly expenses will grow from 25,000 per month to 1.5 lacs per month (considering inflation of 6%). Now this money will help him survive for not more than 10 months … For so many years he pays high premium each year, just to get back money to cover his 10 months monthly expenses? What the hell !!!

Under Insurance :

Because of the fact that people want money back on survival and because of high premium, people end up taking policy for which they have to pay premium under there budget, which means less cover.

Without realizing the fact that they are highly under insured, the reason for this is that they see Insurance as investment product and not a protection cover for there family. When they die, there family get the money from Insurance company, but most of the time its not enough for them and it erodes very soon.

Term Insurance Policies

Lets discuss the features of Term Policies with respect to above example.

Cheap Premium : The premium is very low for Term insurance Policies. For above example. The yearly premium for Rs.75 lacs cover for 25 yrs is just Rs.20,000 yearly or just 1,600 per month !!! .

This is in any way affordable for most of the people. Its providing the fundamental requirement of Good cover and low premium and if you think of returns, Good cover and low premium can themselves be seen as good enough return. You family protection at low cost is the return you get.

Watch this video to learn more about Term insurance and it’s benefits :

Opportunity to invest rest of the money in High return Investments :

With term Insurance you save a lot of money in premium and now you can invest this money as per your wish in high return instruments, anyways in Endowment policies you put money for long term and you get it after so long time. So you can now always put your saved money in things which are long term investment products and return great returns.

One of those things is Equity Diversified Mutual funds and Direct Equity (depending on persons ability and interest). In long term Equity Diversified gives fabulous returns (15-20 yrs) and the risk is minimized because of long term.

And if you consider India growth story , it looks great in long term , hence Equities for long term is the most obvious choice. They will give you return of 15%+ CAGR. (15-20 yrs)

Also it will be flexible , you can not invest for a year or two, if you want to use the money for your family vacation or some important event.

Conclusion :

Insurance is not an investment product, its a Protection instrument for your Family or any one your want to cover. There are other products for your investments.

Let your finances be the way you want your life to be , SIMPLE !!!

Don’t mix Insurance and Investments. There are products like ULIPS(What are ULIPS) and Endowment or Money Back policies which never excited me. They complicate things, confuse people. They can be good if you understand how to make most out of it, but it require knowledge and expertise. They offer some flexibilities, but still they are not worth it.

Read more on Term Insurance at my Old article. I would be happy to read your comments or disagreement on any topic. Please leave a comment.

Disclaimer: All the opinions are personal and shall be taken as knowledge sharing and not as encouragement

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98 replies on this article “All you want to know about Term insurance and Endowment policies with suitable examples”

  1. Jyoti Singh says:

    Hi Manish, I was surfing about term policy verses any other endowment policy and found your blog. I must thank you for your valuable comments and truly eye opener.
    I’m 39 year working professional, my spouse is 43 years working in a private firm and we have a daughter of 17 year. Unfortunately I have never invested in any life covering policies. We’ve few SIPs all put together around 7k each (self and my hubby) month investment. After reading your blog I could understand the importance of term policy. Now please suggest us which policy from which insurance company is best for both of us. Which covers us 1crore each with less premium. I’m really worried about this now and I know we are really late here. Please help us. Your suggestion and guidance would be highly appreciated. Thank you Jyoti

    1. You can take HDFC Term plan , we can help you in the full process. All you need to do is fill up this form – http://www.jagoinvestor.com/services/life-insurance

  2. Policy x says:

    Very informative post. Life insurance is very much mandatory. I would like to suggest on my behalf to compare the policy before purchasing it.. By comparing one can select the best option as per their requirements at reasonable premium and be saved from fake commitments. Here are some websites from where one can compare. http://www.policyx.com/ , policy bazaar,policy mantra..
    Thank you

    1. Thanks for your suggestions πŸ™‚

  3. Deepak says:

    Hello Manish,
    Nice post. I have been reading your articles for an entire day now and continuing….

    I recently took 4 LIC policies:
    1. Jeevan Anand for self and wife for 5 L each , 20Yrs, and paying 4K monthly premium
    2. Jeevan Tarang for self and wife for 5L each, 15 and 20 yrs and paying 4K monthly premium.

    I was lured by the LIC agent stating the policies are retiring and these are the best policies.

    But after reading the Jeevan Tarang review and other posts, I have realised that I have done a mistake but fortunately I haven’t received the policy documents yet.

    I wanted to know if the cooling period is calculated from the day of first premium or the policy print date?

    Also I am planning to invest in HDFC click to Protect term plan for 70L to 80L cover. Is this the good term insurance plan.

    Also please suggest some low risk investment plans that I can invest into(after closing my LIC policies) The budget would be 8K monthly.

    Once again thank you for the knowledge that you spread.

    1. Once you get the documents, please give it back and surrender it .

      1. Deepak Pandit says:

        Do you mean I would NOT be getting me money back, or will the policy be in its cooling off period ?

        Also can you suggest some low risk investment plans.

        I have ordered your books just now from flipkart and I am dying to read them.. πŸ™‚

        1. You will get the money back after cutting some nominal charges if you do it within 15 days of getting the policy.

  4. Kalyan says:

    Thanks for the post. I now decided to forego my LIC retire and enjoy policy which i took last year with a hefty premium of 60k PM. The cover i get is merely 15 Lakhs and to get my money back i have to live till 60 years. I will put 20% of the money i.e., 12000 in a pure term policy and rest of the amount in any investment product. I hope this is a wise decision, though i would be losing 40k(which i paid as a first premium).

    1. Yes, I would have done the same if I were you

  5. Shriyal says:

    Dear Manish,

    First of all thank you very much for educating us through your blogs. I am 30 Yrs old and have started learning about “Personal Finance Management” and happened to come across your bolg and now its been 3 days and I cant stop reading :). I will read every bit on this blog! I am learning more and more about Insurance and am convinced that simple term plan is best for me!

    In our country, very unfortunately finance management is not taught in our schools/ colleges ( I was very good at integrations/ derivations πŸ™‚ which are of no use now πŸ™‚ Pls take me on a lighter note. In a way you are doing service to the public and keep up good work.

    I am now a fan of yours!
    Cheers!
    Shriyal

    1. Thanks Shiryal ! .. glad to know you are liking the content and reading it and learing it , please spread the blog name among your friends also !

      1. Shriyal says:

        Sure Manish! Its my new mission now! I know many of my friends are in need of it πŸ™‚

        Shriyal

  6. vipin nair says:

    Hi Manish,

    This is the first time I am putting my comment on your website. Hope you get a few moments to help me get a valuable reply.

    I am married man planning to extend my family soon. My parents are dependent on me and have a sister whose marriage is planned in 2 years.

    Please see my investment details as below:

    1. I took a ULIP worth Rs.6 lakhs life cover in Dec ’08 and the present fund value shows Rs.1,04,000 with an annual premium of Rs. 30,000. (although I have paid around Rs.1,20,000 till now)
    2. I took an LIC Jeevan Saral of Rs.5 lakhs in Sep ’11 (one for myself and my wife each) with an annual premium of Rs.24,500 each
    3. I took another LIC Jeevan Saral of 3 lakhs in Sep ’11 with an annual premium of Rs.14,700
    4. I took an LIC Whole Life Policy of 2 lakhs in Sep ’11 with an annual premium of Rs.6400
    5. Worst part: I have no term plans !!

    I am a novice in financial things and was lured into taking the above LIC endowement plans by my father’s friend, an LIC agent unfortunately πŸ™

    I started reading your blogs 2 months back and now I am a bit unsure about what to do with all these LIC policies.

    Kindly advise..!!

    1. vipin nair says:

      Just to add, actually I am thinking of closing the Bajaj Allianz ULIP and invest it in some other equity option..please advise if this is a sound decision.

      I am also okay to close the LICs because they are just one year old and put the resulting saved amount into other things..or may be close only 1 or 2 of them and add a term insurance to strike a good balance.

      But again I need some guidance if this is a sensible step. HELP !!

      (Fyi: I have a home loan of 12.5 lakhs taken 2 years back as another liability)

      1. I think it needs more data to comment , what is the current vlaue in ULIP and other details, please open up a thread on our forum – https://www.jagoinvestor.com/forum/

    2. Vipin

      These ULIP and LIC policies are not serving you , its something you are tolerating in your financial life. Better take tough actions now . Discard those policies , surrender the ULIP and now take a huge cover with a term plan .

      Manish

  7. yatendra says:

    hi…
    i come to know your site just two weeks before .
    this is really excellent and infomative….i always had some questions in my mind but now i got the place from where i can get all my answers .thanx
    Manish i want to know that i ‘m interested in investing 7-8 lac. in equity fund for 10 -15 years ..for that what are the good funds…and what is your opinion on axis funds , AIG , please respond .
    thanks

    1. I think you can invest the money in parts , but in funds with a long term history like HDFC Equity , DSPBR top 100

  8. Ankit Pandey says:

    Hi Manish,
    Loved your blog !! I’ve just started earning and need your advice. I am 24 and save about 25-30 k per month. I am considering to choose the following investment avenues –
    –> 8k per month SIP in Equity MF / ELSS
    –> 5k per month recurring deposit / PPF
    –> 5k per month is debt mutual funds
    –> 5k per month (60k per year) direct equity
    –> 8.5k per annum for a term insurance cover of 1 crore for 35 years
    –> Remaining amount in Gold ETF
    I am not at all risk averse at this point as I am single with no dependents. Kindly address my following queries –
    –> Which between these two should I go for — ELSS or Equity MF ?
    –>Which is better in terms of returns (long term post-tax) RD or PPF ?
    –> Any investment advice or modification in the above-mentioned investment portfolio ?

    1. Ankit

      Truely speaking, I think you are over planning and choosing things . You should keep it very very simple . Just invest some monthly amount in HDFC Prudence and a Recurring deposit for next 1 yr , in the mean while learn about personal finance, you can also take complex decision later

      1. Ankit says:

        Thanks Manish !! Really appreciate your quick response !! πŸ™‚

  9. Shashi says:

    Hey Manish ,
    Thanks for the reply .Actually i was looking my email ,if i got ur response . but didn’t see any mail so thought there is no response from you side

  10. Shashi says:

    Hi Manish, i recently saw ur site while surfing net and ur blogs were like eyes opener for me. I earn rs 25000 per month and can invest 60000 per year (started investing from this year as took jeevan anand premium around 50000*21 and one other plan premium around 7000*15.)After reading ur blog its look like i did the blunder ,Now can u please let me know what options i have and how can i invest money where i will get more returns+high coverage. I placed order for ur book via flip kart as i am more curious now about understanding investments. Wants to hear from you
    Thanks

    1. Saashi

      Better have a look at your plans and see what will happen if you continue it or surrender . Take a term plan for sure and do invest in equity (MF)

  11. Sharan says:

    Thanks a lot for sharing your views, completely agree with you.

    With every insurance prod, we get a cover (however petty) in lieu of which a part of premium is allocated for mortality cover (and at a much higher rate than term insurance). So, we always end up paying a stream of money for which we do not get anything more than our peace of mind. But we never realize this!!

    1. Thanks for reciprocating that thoughts Sharan ..

      Manish

  12. Yash Dubey says:

    Hi Manish,

    Finally I have decided as to where I want to park my money:

    ELSS: Not sure amongst Canara Robeco and HDFC TAX Saver – 1500 (HDFC is a consistent player but Canara has started giving good returns in the last 5 years)

    Balanced: HDFC Balanced – 2000

    Small and Mid-Cap: ICICI Discovery – 1500

    Please let me know if this is fine. I have tried to do the thorough research for coming up with these names like ratios and long term returns but still confused like hell.

    Looking forward to your reply. πŸ™‚

    1. Yash

      thats too much of research .. However your choices look good .. well done .. now move to next thing . ACTION

      Manish

  13. Yash Dubey says:

    Thanks Manish for the suggestions. One of the reason for starting early is that I want to understand the functioning of markets and various investment oppertunities available.

    I will come back to you after finalising the products. In the mean while I will keep enjoying the invaluable suggestions available in this site.

    Thanks a lot.

    1. Yash

      Sure .. let me know if you want to know more !

      Manish

  14. Yash Dubey says:

    Hi Manish,

    It is said that the best investment startegy is to start as early as possible. So, I was thinking of buying Life Insurance policy for some time now but had never act on it. Today while browsing through the net I thought of learning more about insurance and with a coincidence came across this site and guess what, even after 2.5 hours I am still glued to this site. I must say this is the best site I have came across for information on Life Insurance till date.

    By the way I am 23 years old and want to invest 5k-8k monthly(my monthly salary is 24k). Can you please suggest me as to where I should park my money?
    I was considering taking an Term Insurance, an SIP of 1500(mainly HDFC Balanced, suggest if you have better option), and rest in PF or somewhere.

    Thanks a lot for this wonderful and informative site. Looking forward to hear back from you.

    1. Yash

      You have started early for sure .. Keep it simple and given you have long way to go , buy a term plan and start 2-3 SIP’s in funds like HDFC prudence , ICICI Discovery Fund and HDFC equity

      Manish

  15. SK. KHAMARUDDIN says:

    excellent. u have done a great job. u reminded amartya sen by ur writing.

    1. SK. KHAMARUDDIN

      Thanks πŸ™‚

  16. VIGNESH says:

    EXCELLENT ARTICLE..I am new to all this(college graduate just joined into a job)…..I want to ask you more queries regarding tax and mf.will u be able to mail your mail id. it will be helpful. thanks.. once again its a very superb article without any technical jargons

    1. Vignesh

      You can ask your questions on the blog itself .

      Manish

  17. Peenuts says:

    Excellent article as usual πŸ™‚

  18. Sathishkumar says:

    Dear Manish,
    This is sathish. I am LIC insurance Agent. I got this license 2 months back.
    After becoming an agent, I should know some LIC policies in detail and as well as financial planning. (I always think of Inflation)
    While surfing I got into your blog. I really thank the situation.
    After all I read the articles, I come to know, Term Insurance is the best for everyone.
    Presently I working in a private company and doing part time job as LIC Agent.
    In most of the comments your saying “Peace of Mind” is important. Its true.
    I just want to do a part time job to earn and satisfy myself as well as the person who is taking the policy.
    Your lead me in to a new path.
    Thanks for that.
    (Note: I am from chennai, I am not good in english. If i done any grammatical mistake, I apologise for that.)
    Thanks & Regards,
    Sathish

    1. Sathish

      Thats great to know ;). You can have a great life as an agent or an advisor if you provide enough value to your clients . Do keep reading . Thanks for being a reader

      Your english is good , dont worry on that , its not a blocker to become successful :0

      Manish

    2. Sathish

      Thats great to know ;). You can have a great life as an agent or an advisor if you provide enough value to your clients . Do keep reading . Thanks for being a reader

      Your english is good , dont worry on that , its not a blocker to become successful :0

      Manish T

      1. Sathishkumar says:

        Dear Manish,

        Thank you so much.

        Thanks & Regards,
        Sathish

  19. Chaust says:

    Thanks Manish for the quick reply(so its not only me who sits up late at night) πŸ˜‰

    1. Yes you are right about selling it asap. However, i would probably do some more research before taking that option. For now, its doing fine and i believe it could probably help me in the long run(as you mentioned) to balance my portfolio and even build up some capital for kid’s education etc.
    I will try to share more details of this plan with you..seems like this ULIP plan is less evil than the rest out there πŸ˜‰ But i would really want to hear what you make out of it.

    2. Yes i will act on your suggestion and go in for term insurance. Could you please suggest any other good term insurance plans other than iTerm?

    Thanks !

  20. Chaust says:

    Hi Manish,

    As always an excellent article. To be frank, I have always been a lazy kind of a guy and the last 10 years that i have been earning, i do not have much to show for. πŸ™‚
    Then two things happened:-
    1. I became a dad.
    2. I chanced upon your blog πŸ˜‰
    Both have been eye openers and now i have started seriously contemplating financial planning.

    However, before i discovered your blog i had made a mistake(?not sure) of buying a life insurance policy at the behest of a Citibank agent who i think cheated me by selling me the policy without explaining me the terms and conditions. I havent heard from him in the last 1.5yrs(dont expect to either) after he has pocketed his commision.

    My policy is Birla sunlife for which i have to pay annual premium of 1.2L for 20yrs. I had go into this scheme when the market was down -Apr 2009(sensex 8000) and have paid around 1.6L till date.
    I realised later that the cover which this policy offers is very less(17L) only. I mean obviously there would be the “fund value” of the money i invested here but still i feel cheated because of my own stupidity.

    After reading your posts about term insurance, i am thinking of buying AR term insurance(iTerm) to cover the risk/event of death(we shud not call it a risk, it is the only thing certain in life πŸ˜‰ )

    So my dilemma is :-
    1. Should i continue the birla sunlife policy and look at it as a savings cum insurance plan for future?
    2. Should i cancel BSLI and go for iTerm?
    3. I am of the opinion that maybe i should continue BSLI for 5-6 years more and get out when my fund value is more than my invested amount. At the same time, i am thinking of buying AR iTerm immediately to cover the ‘event’ of my death. In my current situation i can afford to pay 10-12K premium for iTerm along with the BSLI premeium.

    Couple of other things about me –
    Age – 32 yrs. Family – wife, 2 yrs old kid, parents.
    Liabilities – 20L home loan(25K emi per month)

    What would you recommend?

    1. Chaust

      Great to hear back from you πŸ™‚ . I didnt knew you would check your comment on that old blog πŸ™‚ . Here are my comments

      1. Should you continue ? Just like millions , you are also missold a ULIP and now you are in same confusion , You should continue the ULIP if you have strong reasons like You can use it very well to rebalance your portfolio and time the market and switch it well . If you are just going to feed money in it and sit on couch without doing anything , then its of no much use .

      2. Should you cancel BSLI is answered from point 1 . For going for Term insurance , definately you should not be late at all , just imagine if you die in next 1-2 days what klind of scary things will happen with your wife, 2 yr old kid and parents . Take a term plan ASAP , run !! . Take 2 plan for 50-50 lacs .

      3. Your way of thinking is very common and very correct , we all suffer from this mentality that our sell price should be more than our buy price , WHY ? It only make you feel better , nothing else , why do you forget the time which is lost in all this process to make you feel “WINNER” . if you have 1.4 lacs today and you have to wait for say 5 yrs when it goes above your buy price , then you sell it , yes you become a winner and a profitable investors , but does it make any sense ? NO !!

      You have to sell it off today and then use it for investing in a much better way πŸ™‚ . Continuing something is same as “will you buy it today” ? if yes , then go ahead

      Manish

  21. Shubhra Singh says:

    Hello Manish,
    Thank you for so many points and knowledge on this single page.
    I am quite new to this Insurance issue, but it really sounds good. Something, which i want to know is that i came to know that people say Ins. Policy should be taken soon because as the age increases premium is also more. I am interested in a policy of around 5to 7 Lakh but rightnow my savings are not much and the premium will be high for this category. Is it possible that I may take a policy of 2.5Lakh or so and TOP UP it later by any means. Please suggest.
    Also suggest me some other way too.

    1. Shubhra

      You should first answer what amount of money your family should get today if you die so that that money can start giving all the expenses they need to live life comfortably all their life , with this they should also be able to acheive all the future goals . Will 5-7 give that ? NO !!

      5-7 lacs will only give not more than 3-4k per month to your family every month . I think your cover should be atleast 50 lacs πŸ™‚ , just a rough figure for which you will have to pay around 22-24k per year , which is 2k per month .

      the policy category is TERM INSURANCE , read more article on insurance on this blog and you will understand , your insurance concepts are totally messed up I guess, if i say rudely but its important πŸ™‚

      Manish

  22. james says:

    Ah, let me see if I got this right. So for term insurance, you can still get your premiums after that certain period when you’re covered?

    1. James

      No you cant , for plain term insurance policy , once the term is over, the whole contract is over and you dont get anything . However , there are some special “return of premium” term policies where you get your premium back , but they are costly and hence does not make sense .

      Manish

  23. Debu says:

    Hello Manish,
    One more query. What wil be your suggetsion on LIC Amulya Jeevan-1.

    1.Some web sites says this covers only the normal death and no accidental death is covered. If this is true, should I go for this or any other equivalent plan).
    2. The lic web site also says Benifit on maturity is NIL. Soes this means after the insurance period say 20 Year, if i am alive I will not get any money.. not even the money that I have given as premium).

    Please help me understanding this so that I can make a wise decision for my insurance.
    Regards
    Debu

    1. Debu

      Its a pure term plan and it does not provide any money at the end , thats the reason its inexpensive for pure cover, thats what its work is , to provide a pure life cover to you at a small price . There is no bad thing if its not returning any money because it will anyways given you security and peace of mind for several years .

      Just that its bit expensive compared to other term covers .

      Manish

  24. Debu says:

    Hello Manish,
    Thanks for the information. Is this post still valid? I mean has anything changed between the time you post this and now or it still remains same. After reading your article Now I am sure I am not going for endowment plan. I will go for Term Insureance asI want just insurance for my family.

    Can you please suggest me one policy ( i will prefer LIC for safety reason.. may not be the best reason) for Tem Insurance. I am 39Yr and can afford 30000-50000 per Year.

    Also I neeed to check what kind of insurance I had earlier (i only know i am paying around 22ooo per year and that only a 500000 insurance policy).
    Regards
    Debu

    1. Debu

      Yes , this post is still valid .

      You should get any term insurance and take it fast . A 1 crore cover for you should cost around 40-50k only which you can pay . Get out of pure endowment and money back plans .

      Manish

  25. chandra says:

    A great article, An eye opener, Got clarity between Term and Endowment Insurance, Kudos!! for the great service you undertake. Keep it up. May God bless you.

    Regards
    chandra

    1. Chandra

      Thanks , keep coming

      Manish

  26. Sourav says:

    In addition to what I stated before, my current investments are in SIP (Rs. 25K monthly) and PPF. I still have spare of around Rs.2.5 lac per year which I can invest in other investment products. What would you suggest I invest in?

    1. Sourav

      You should go for Financial Planning , the suggestions cant be made randomly , it will depend on your goals, risk appetite and time horizon .

      Manish

  27. Sourav says:

    Me and my wife earn about 2lacs per month right now. I am 29 and she is 26. We are also going to be having a child next month. As my wife is the only child of her parents, her parents have made sufficient investments in her name.

    Other than my wife and child, I do not have to support any other person.

    In this scenario, would it make sense to take up a term insurance? I did enquire about Birla HNI Term Plan where the quote is around 42K annually for 30 years and for Rs.1.5 crore with some additional riders added to it (e.g. accidental death benefit – 10 lacs + critical illness – Rs. 10 lacs).

    I was wondering if it makes sense to invest the 42K in something where I get a return, or put it into term insurance, considering that my wife has sufficent financial backing even if something happens to me.

    1. Sourav

      Incase she can support herself well incase you are not there, then it does not make sense to go for insurance . Only if you want to provide her over and above what she has , you can take some Insurance .

      Manish

  28. Falguni Mistry says:

    Hello Sir,

    Thank you so much for such a informative article.
    As advised by my parents, I have taken policy jeevan tarang in february 2007 for 20 yrs (when I was 23yrs old and paid 4 premiums of 49,200/- rs till now).
    Can you please let me know, which options is good for me (1. Convert it to paid up Policy. 2. Surrender policy 3. converted to a Term Insurance)

    Thanks & Regards,
    Falguni Mistry

    1. Falguni Mistry

      The best option would be to surrender it and get out of it . You cant convert it to term insurance .

      Manish

  29. rajeev says:

    Hi Manish

    Good on you for this blog on educating the common man. The information on your website is very useful and easy to understand for anyone. Investors will be richer if they read this blog and follow the simple advice given here.

    Regards
    Rajeev

    1. Rajeev

      Thanks .. Keep coming

  30. kalidas panambor says:

    Manish,
    Really the matter is too good and it has helped me a lot .
    Actually I was in a dilemma of going for term plan or endowment policy . My agent was very much after me on going for endowment policy rather than term plan . But after reading your blog I am very much convinced of going for term plan.

    Thanks
    Kalidas

    1. Great

      I feel glad that I have inspired you to take term insurance . Thats an achievement for me πŸ™‚ .

      So which term plan did you go for . Have you calculated your Insurance requirement properly .. just a concern

      thanks

      Manish

  31. Mahesh says:

    Manish,

    Really nice work.Thank you very much.

    I have LIC endowmwnt plans in which I am investing 62000 Yrly. & one money back 7250 yrly. from 2006.
    What you suggest here to get more return & insurance.
    please give in detail if possible.

    Thanks once again.

    1. manish says:

      Mahesh you should read the review of Jeevan Tarang on this blog . you will get a feel about money back and endowment policies .

      The best way to get more returns from these policies is to stop them .

      Manish

      1. Urvashi says:

        Nice article manish, but now you have got me into dilema,
        I have got LIC endowmnet policy & im paying Rs 63000 Per annum, already paid once (Fortunately only once), also i have a pli endowment wherein im paying about 26000Per annum (Last 4 years).Please suggest.
        And also tell me where and how do i invest it. Should i surrender the policy or make it paid up(How do u make a policy paid up?)

        1. Urvashi says:

          After every 4 years they will payback 70% of invested amount and after 15 years they pay for me. do i still surrender the policy.

          1. Urvashi says:

            sorry for adding so many posts missed out a few things , what i mentioned about the payback is regarding LIC endowment.PLI is not giving me anything untill term is complete.Spoke with pli guys, They say i’ll get about 30% of amount invested, or i can take loan which comes again to 30%. (? he thought im in need of money)

            1. Urvashi

              Its not about LIC and PLI , its a category of Product , you have money back policy from LIC , thats the reason you get money back every 3-4 yrs, however with PLI you have simple endowment plan , you pay more for money back plans , thast the reason you get money in between

              Manish

        2. This is not enough data . Better start a thread on forum : https://www.jagoinvestor.com/forum/ , we all will show you the way

      2. S. Sunil Kumar says:

        Dear Manish

        JEEVAN TARANG: It is a 3 generation policy. It is a Endowment + Whole Life Money Back + Whole Life Endowment. It is a wonderful product if you understand the benefits. Look at it as protection shield & not as a investment πŸ™‚

        1. Sunil

          HOw do you define wonderful here ? Can you get into numbers and talk about the returns of the policy and insurance with the cost ?

  32. manish says:

    As far as my understanding , you can only nominate a “nominee” . Nominee is someone who will get the money in hands , but at the end nominee is not the beneficiery . The final amount goes to the beneficiery by law .

    Manish

  33. Avijit Ganguly says:

    For nominating a beneficiary is there an ‘Anyone or survivor’ option. in any insurance plan whether Term or endowment? . What documents need to be presented by the beneficiary & where incase the need for a claim arises? As such what are the formalities involved in making a claim & how easy or diffficult is it?

  34. manish says:

    @JayPrakash

    All you need is a term Insurance .. take the cheapest one for your age , try apnainsurance.com to select one .

    manish

  35. Jayaprakash K says:

    Sir,

    I am 40 years old and earning around 8 lacs per annum. I wold like to take one policy having low premium but high life coverage and return against the investement is not important. Kindly advise a policy.

    Regards

    Jayaprakash K

  36. Manish Chauhan says:

    @Noor

    Thanks πŸ™‚

    Manish

  37. Noor says:

    Nice work, really an eye opener.

  38. Manish Chauhan says:

    @Mohammad

    Thanks for the link , its really nice one

    Manish

  39. MOHAMAMD RAHUF says:

    "Hi,
    I think life insurance is much needed in our life not only to provide the financial stability to the family but to also to be confident about ur future Here is an online tool which I would like to recommend that help people to plan their insurance & that’s according to their need & budget.
    Please check this out at – ;

  40. Manish Chauhan says:

    Vincent

    As you can see that Insurance is to cover from financial risks , So the tenure must be a timeline in which you think there will be no risk.

    For example , if you are 25 and you estimate that within 20 yrs , you will earn a lot money ,. so that after that you dont need any risk cover , then take 20 yrs cover.

    But my recommendatin would be to take the cover for longest term possible , Anyways you can terminate the policy later . and on cost front it wont matter much .

    manish

    1. vikram says:

      Its a superb artile. I just became your fan after reading it. may i get your contact number or mail id. it will be great to talk to you.

      Thanks and Regards
      Vikram Singh solanki
      ASE – TCS

      1. Thanks

        I mailed you πŸ™‚ . How did you come to this blog ? How do you rate yourself in personal finance .

        Manish

  41. Vincent says:

    Really great piece of advice. it cleared all of my doubts about insurense. but how many years (duration ) we need to take ?

  42. Debt Help says:

    oh!what a great writing style..i really appreciate your blog..well done

  43. Manish Chauhan says:

    Hi PD

    thanks for the comment .. To understand more about why your Endowment policy may be bad , read http://finance-and-investing.blogspot.com/2008/10/why-endowment-policy-are-never-best_08.html

    As you have already paid for almost 50% of tenure , now its not a good idea to surrender it . You have some choices here .

    1. Convert it to paid up Policy (talk to your agent , once u convert it to paid up policy , you can stop the premium payment from that point onwards and the insurane cover decreases proportionally. The maturity value should also decrease by same amount . (Recommended) .

    2. Surrender your policy . (You should get around 30% value . (Not recomended now).

    3. I am not sure if that can be converted to a Term Insurance . Try talking your company .

    – Manish

  44. PD says:

    Hi Manish,

    Good post!

    I have LIC Endowment policy for 20 years – starting 1999. Is it possible to cancel this now (though I have not decided yet)? Do you know deductibles?

    Thanks

  45. Anonymous says:

    Thank you very much. This has enlightened me and i wont do the same mistakes anymore

  46. Ajay says:

    it is simply fantastic .They are simple and very easy to understand and nobody is required to explain it

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