why not endowment plans and child plans

POSTED BY vimal vinod singh bhadauria ON April 11, 2012 2:05 pm COMMENTS (13)

I can’t understand one thing ” you all finance planner says that don’t mix insurence & investment so avoid endowment plans& child plan & ulip plans.
My qustion is
” why insurence componies and IRDA not taking action for that???.
why are diffrent type of ULIP plan are launched regularly??
Are they making fool the peoples ????
Why they selling such products???
They should be stoped from doing this.
IRDA , SEBI , RBI , FINANCE MINISTRY there are so many bodies to LOOK WHAT ARE THEY DOING.???
THAT MEANS IT HAS SOME THING.
PLEASE GIVE SOME VALUBLE ADVOICE FOR THAT B’COZ I PAYING AM FOR ICICIPRU LIFE SMART KID CHILD PLAN & MAX NEW YORK LIFE’S SIPS PENSION PLAN. I am confuesed to continue or not . Plz give suggetions. sply views from ashal ,manish, weathucreate,justgrowmoney and others
Thanks
vimal

13 replies on this article “why not endowment plans and child plans”

  1. PANKAJ GIANANI says:

    Now that the decision has been taken from my side to invest in Jeevan Saral, what is the way out. I am told that I have to stay invested for atleast 10 years and then get the royalty bonus. If I withdraw before then the surrender value is not even giving me back my own invest less of the premium LIC would charge for the same amount on term insurance ! I have been on it for 4 years and is it wise to continue for another 6 years and get around 8% return.

  2. 15000*4 => 4 premiums paid. You can stop paying from now on. Check when you can withdraw this.

    15000*2 => 2 premiums paid. You are better off paying the 3rd premium and stopping beyond that

    IN both cases you will get money after the 5th year.

    Do note I am providing generic ULIP recommendations. You may want to read the policy document once and also check with the insurer on the exact redemption time frame.

  3. vimal vinod singh bhadauria says:

    yes i can understand what you all are talking.
    Such products are ijerious to financial health .
    Actualy i am illterate in personal finance untill when i don’t join this group, thanks a lot to manish & you peoples.
    Actually in my ICICI smart kid policy(childplan) fund value is less than i have pay.
    (15000*4 paid bt value is 54000) & MAX NEWYORK SIPS (PENSION PLAN) I HAVE PAID 15000*2 bt value is 23000. Both have due in june 2012 for next premium. Now advoice me what to do with these clearly .

    1. Dear Viaml, Please pay the due prem. for both these policies in June 2012. After few months some where around Nov. Dec please revisit the issue. In between please do check for surrender charges applicable to these policies.

      Thanks

      Ashal

  4. Dear Vimal, life is all about choices. There are Doctor A, B & C but as per your own choice you ‘ll visit only one of them & it ‘ll not be decided by the Govt. to whom should you visit? There are locality A, b & C, you have your own choice, where to purchase your property? Nth example can be given.

    At the end of the day, your choice ‘ll decide which way you want to go. Yes increasing your own knowledge to understand all the tit bits is important & that’s why all of us are here on this forum to help each other.

    Thanks

    Ashal

  5. TheZionView says:

    @vimal
    I dont have anything more to say than what already been said above. So just asking a counter question to you

    We know processed sugar,food,drinks are not good for health in long run,why is government still allowing cocacola,pepsi,lays,kurkure,McD,KFC to sell their products in India?

    1. Ramesh says:

      Add tobacco, bidi/cigarettes to that list. 🙂

      But, surely IRDA should make it mandatory to add this to each combo product ‘Combining insurance and investment can be injurious to your Financial health’.

      Ramesh

      1. Ramesh – Just loved that statement!

        1. Sachin Kumar Nigam says:

          @ ramesh nd zion view gr8 humour..!

          just on a lighter note1

          werent human beings better off during age of BARTER..! hasnt the currency complicated human life ……:))

          1. Ramesh says:

            Barter system was complicated. You never knew how to calculate the exchange ratio between sack of wheat and cotton clothes!

            Currency has made things easier and easily scalable for usage.

  6. BanyanFA says:

    Hi Vimal,
    You have raised a very valid point. I am also struggling to identify why such products are living in the current market.

    My experience of developed markets such as UK, Europe says that there are no such toxic products in such markets. Insurance & Investments are seperate. Pension schemes are managed by Investment Companies which don’t provide insurance. This is by regulation.

    India has some how clubbed Insurance and investment to inculcate the habbit of saving and taking insurance for the general public. For ones who are lucky to get financial advise from a person who is not influenced to get a commission, tend to get an advise to get away from such products.

    Regards
    BFA

  7. The only “advantage” or what ‘appears’ to be advantage is that if you do not pay the premium the policy (Endowment) the policy become paid up sometime thereafter so this “fear” motivates people to make sure the payments are made in time. This inculcates a discipline saying: I need to pay premium of 50k in Jun 2012. Let me start saving little bit from now. A SIP/STP holder on the other hand can become complacent saying “instead of 12% I already got 15% CAGR for 6 years so let me spend money on some luxuries. After that I will restart my SIP”. This class of investors while almost guaranteed to succeed (at least than their ULIP/ENdowment counterparts) dont have anyone/anything to discipline them. I know views may vary but apart from this minor advantage ENdowment/ULIPs carry absolutely no advantage.

    Endowment plans invest in Debt and charge you for it.You can yourself invest in Debt – PPF/EPF/VPF, Tax free Bonds, FMPs, Debt funds, Other bonds, Corp deposits, FDs/RDs etc.

    Euity ULIPs invest in the stock market which is what exactly Mutual Funds do the latter at lower overall costs.

    Numbers dont lie and a combo of Term Plan (other insurances) + PPF (other Debt) + Mutual funds are highly likely to beat the ULIP and Endowment plan returns.

    The commissions in all of the above products for a successful financial life are lower so the industry as a whole would suffer if everyone took those products alone. An agent gets a good part of the charges in ULIP in the first year. Assuming he/she sells MF the upfront commission is already low and future payments are dependent on trail commissions alone. Roughly speaking commissions got selling 1 ULIP > Selling 20 monthly SIPs of 5k so people work on where they make most money in short time. And distributors are vital to business expansion. So insurance companies, even if they have a heart, are forced to listen to their brain and keep inventing iNsurance+investment combos all the time. SEBI did barge in 2 years ago but what happened then is history.

    In most industries across countries it is true that regulators become regulated by the industry themselves!!

    And – ICICIPRU LIFE SMART KID CHILD PLAN & MAX NEW YORK LIFE’S SIPS PENSION PLAN. are all toxic policies. Sometimes you get a good amount back if you pay premiums for 3 years atleast (post Sep/Oct 2010 plans). Even otherwise you can contribute for 3 years and stop. If just 1 premium has been paid just forget these policies. There is no one solution fits all but sooner you stop these policies usually the better.

  8. Ramesh says:

    1. Not everyone here is a financial planner or advisor or distributor.
    2. Insurance companies are here to sell insurance products (including LIC and others). For that, they will use all means (read, as a financial lobby group, get the govt to put insurance in tax-saving deduction section, prevent absolutely rubbish type of plans from getting sacked from that list, etc).
    3. IRDA manages insurance companies. If there are no insurance companies, the IRDA will be dissolved. IRDA (or any other regulatory authority) has many constraints, and sometimes (mostly actually) do not cater to the good of the common people.
    4. Distributors and agents get money only if they sell the products, not by educating what is good or what is better / best for the client, whether that product is really suitable for the client or not.
    5. Many financial planners do have secondary (or say primary) income from distribution / selling of products.

    Here, there have been a lot of discussion threads for analysis of these combo products, please go through them.

    Make an informed choice and read all the things which come in the brochure of your product (IRDA makes it mandatory to publish and send you those things, which is good). In the end, it is you as a person / consumer, who is responsible for your actions, whether those actions have been done under social/financial pressures or sweet-talk or by thinking logically about your circumstances.

    In the end, do what is good for you. Do not expect others or other organisations to look after your concerns.

    Ramesh

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