POSTED BY April 3, 2009 COMMENTS (255)ON
Term Insurance is the best form of Insurance, but why not take the “Return of Premium Term Insurance” Policy, which is same as Term Insurance, but with the return of all your premiums back, in case you do not die :), Which is better is a common question now?
Let us do simple maths and analyses of our self. If you know a little bit of math, you can be far better than many by analyzing things your self. So how do we find out which is better? “Simple Term Insurance” OR “Return of Premium Term Insurance”.
It’s too simple to find out. Just try to come up with a plan which beats or does better than “Return of Premium Term Insurance”, If you can beat it, than Simple Term Insurance is better else its not !!
Let us take an example scenario …
ING Vyasa has a “Return of Premium Term Insurance” plan called as “ING TERM LIFE PLUS”, click on the “Benefit Illustration” link in the middle of the page and it gives the following example for regular premium.
On the Life Assured surviving to half the policy term, the Company will return 40% of the regular premium or 20% of the single/limited premium, as the case may be, excluding the extra premiums if any paid by the Policyholder.
On the Life Assured surviving to maturity, the Company will return the total premiums paid without interest, after deducting the policy mid-term benefit and extra premiums if any paid by the Policyholder.
So the numbers look like this :
Let’s take a simple Term Insurance + PPF combo From Religare Aegon, I got that Insurance premium for 35 yrs old for the amount of 12 lacs and duration of 20 yrs is Rs.3721 (after-tax). So if we pay 3721 out of 10,653 for Insurance, we are left with Rs.6932 (10,653 – 3721).
If we invest this Rs 6932 per year in PPF for 20 yrs, @8%, we would get 3.4 Lacs. Which beats ING amount of 2.1 lacs. Now, this is the safest way of beating it. No questions behind it !!
For an investor who can invest it in Mutual funds through SIP, assuming an acceptable 12% return, it would be around 6.9 lacs in 20 yrs.
Now the question is what is the benefit of “Return of Premium Term Insurance Plans”?
Ans : No benefit, Now a days Insurance companies have realized that people are understanding the importance of Term Insurance, so the next idea for them was to build something on top of Term Insurance, give a “feel” to customers that “they don’t loose on premiums also” and present a product which looks “irresistible” to them.
But they forget that there is something called as “Math’s” in this world.
Conclusion : So If you have to take Insurance, Just go for plain Term Insurance, Don’t go for Return of Premium Term Insurance, There premiums are too high .. its always better to use extra money to make other investments 🙂
That’s all for now …
Question for you: How will you deal with an agent who wants to sell you this product? Or How will you even convince your friends who fell in the trap of these products?
Final Note: The best products in this world are “Simple”. I consider Term Insurance as a product of the Century !! nothing can beat it !! :). Do simple maths with idiotic products which comes in markets, you will know if it’s worth or not.
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