Investment/insurance – for starter ?

POSTED BY Rajm ON April 2, 2012 12:27 pm COMMENTS (9)

Hi all
I ve just started to do financial planning,I’m24 since 1.5yearsI’m working.I’ve been going thru all the stuffs related to insurance and investment.Even,read few articles on this site.
Right now , I m persuaded by one of LIC agents who is relative too .Well , confused a lot iwht endowment plans (jeevan sarla ,anand and tarang).Agents are telling to go for endowment plan rather than Term plans ,as per agents Term plan will not yeild much as there r no returns. There is tremendous pressure from family abt this LIC thing as the agent is relative .Apart frm tht I need some advice on Financial planning as I’ve allocated 1-1.5 lakh for savings and insurance for next 5 yrs.
Thanks in Advance for your help
Thanks
RM

9 replies on this article “Investment/insurance – for starter ?”

  1. Rajm says:

    Thanks a lot folks .your suggestions have been an eye opener.
    thank god i saved my self of years of frustration and regrets.

    Thanks again

    RajM

  2. Rajm

    This habit of getting into family pressure and not having the ability to say NO has destroyed many financial lives . My honest recommendation is to get out of this habit .. leave all that financial planning and all .. if you can just go home today and tell your parents that you dont want to burn your money in something which gives 4-6% , and rather use it for better purpose , that should be the best financial planning for you.

    Ask your LIC agent how the policy compares to PPF or a simple FD , how it compares to Term + PPF , ask him tough questions .

    Dont take decisions which you will repent later in life , dont do it .. Many people have done it and today they think how big fool they were accepting things like that .

    Manish

  3. Dear Rajm, a plain NO ‘ll save your relationship. Yes you read it right. But in case – you are going to adopt the other root as pointed out by me for that mly mode prem. & not paying after initial prem…….. in that other post, your relative ‘ll surely haunt you. In case you are not able to hold the pressure & accepting any junk plan from LIC, you ‘ll curse that relative for your life.

    Choice is yours.

    Thanks

    ashal

  4. Muthu Krishnan V says:

    please analyze if the plan suits your financial need and then take it. Do not take a plan just because it is sold by an uncle or aunt. Please learn to say a strict “NO”.

  5. annu707in says:

    Nothing can be more crisp and clear then what JGMM mentioned above.

    Regards,
    Anurag

  6. This problem has been discussed in different forms in the forum:

    The theory is simple. You dont want your car or 2-wheeler to get into an accident anytime ever but still take an insurance, right? Term insurance is exactly the same.

    Lets work some numbers here.

    There are 2 persons A and B. They both take their own plans as below on Apr 2, 2012 (today). Premium term = 25 years

    Person A takes Endowment Plan paying some Rs. 30,421 per annum with a Sum Assured of 6 Lacs. Let’s assume the returns (Bonuses etc.) are exactly as mentioned in http://justgrowmymoney.wordpress.com/downloads/ -The endowment calculator [This has to be true because the numbers published there are from an actual LIC Benefits Illustration]

    Person B takes Term insurance of 1 crore with premium of 8000 and invests the remaining amount in Mutual Funds and PPF (50-50). This person knows that if he survives the premium paying term all premiums are lost but is nonchalant about it.

    Scenario 1: It is Mar 25, 2037. For both premium paying term completes in 1 week. Persons A and B both die. They go to heaven or hell and watch what is happening.

    For Person A:
    LIC/ Insurer says: “Oh, he is dead. Lets pay him the princely sum assured of 6 Lacs and also the accrued bonuses of Rs.12,63,546. Lets say this amount is close to 20 Lacs. ” The legal heirs get this amount of 20 Lacs.

    For Person B:
    The insurer says: “Oh, he is dead. Lets pay him the sum assured of 1 Crore”.

    The families are so bereaved that they dont even look at the other savings. Obviously Person A has none probably.

    Scenario 2: It is Apr 10, 2037. Both A and B survive the policy term. A gets back all his premiums and also gets more money = 12,63,546. Cool – he thinks.

    Person B says he lost all his premiums but wanted to check his other returns:

    PPF @ 8% growth: =FV(8%,25,-11000,0,1) = 8.68 lacs. Person A chuckles.
    MF @ 12% growth: =FV(8%,25,-11000,0,1) = 16.42 lacs. Person A is bewildered.

    Now Person A and Person B write a large poster that reads:

    ======================
    After 25 years this happened:
    Person A: 12.63 Lacs
    Person B: 25 Lacs
    You people can decide the smarter of us
    ======================

    Moral of the story:
    Term Insurance beats Endowment Plans whether the person survives the policy term or not {ofcourse the savings need to be invested somewhere else as well}
    Actually if Person A dies after only 6-7 years who will earn that income for the family? The 1 crore goes a long way (at least for a few years) for the deceased person’s family.

    I hope this story turns out to be an eye-opener for everyone who believe Term insurance is a waste of money. It is not. It is least expensive way to insure the most expensive posession – your life.

    ============================
    Steps for Financial planning:
    Protect Assets = BUY RIGHT Insurance
    Invest in Debt instruments for cushioning portfolio from major impact in market
    Invest in Euity instruments for wealth generation
    Do a proper asset allocation from time to time

    THere goes the simple, efficient financial planning in a nut shell.

    ============================

    1. Rajm says:

      Thanks a lot justgrowmymoney for such an crisp and resourceful info.. It is helpful especially for a novice like me in Financial planing.You changed my views abt endowment and term plans.Really ,I was fooled by the numbers on LIC’s site.

      > I just wanted to ask ,, As i have family pressure to take one plan atleast fmr my relative agent and tht too today itself..After reviewing and comparing term plans I found LIC is not tht promising as it wont cover accident , disability or gives a feature of loan,,while other insurance companies provides it .
      Wht plan can I go for with LIC to consolidate with the family , Is pension plan or Money back plan good…

      > What are safe equities(is it plain stocks or sme other instruments) which can give altest 10-15 % of returns.
      > Being a 25 yr bachelor ,, How well money can be planned so even If 2 -3 yr break is taked for PG studies shld not effect the whole financial plan ….
      Awaiting for ur precious advice …

      Thanks
      RajM

      1. There are no safe equities in this world. 100 years of trust built by a corporation can be destroyed in 1 generation or even 1 decade. Thus lets be clear investing in equities is fraught with risk (Even FDs have risk that only the first 1 lac is insured with a Bank. If someone invests 10 lacs and the bank goes kaput bid goodbye to 9 lacs. However since Banks are heavily regulated such a scenario is a rarity of rarity to happen in India. But just remember FDs also pose risk to capital albeit very low).

        However if 1000s of listed companies have returned double digit growth for decades then the stock market is a reasonably safe avenue to create wealth and beat inflation.

        Direct stocks may be rewarding but very riskier. Hence opt for Mutual Funds to begin with.

        Start investing now. If you have to break for studies and are unable to contribute during that period it is fine. But let that corpus grow even during your studies.

        As for the relative who is pressurizing you to take the policy: Show them the real IRR with the spreadsheet you just got. Show them the story as well. If they don’t agree ask them to do some calculations themselves and prove why endowment plan is good. If they cant just say NO.

        If that is also tough use this strategy suggested in the forum yesterday – http://localhost/jagoforum2/money-back-policy/3123/

    2. rmohan80@gmail.com says:

      excellent illustration; amazing!

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