In today’s market insurance product
are bought and sold for saving, investment and tax saving purpose by large no. of
people. This is how people are misguided, the actual and correct meaning of the
life insurance is to protect your dependent from uncertainties i.e ‘Death’ of
earning member of family. When something happens to the earning member of the
family, the insurance is supposed to provide financial support to dependents so
that they can lead a normal life.
Therefore while you choosing any product of Life Insurance
Co, one important question should come to your mind. Whether Sum Assured (S.A.)
is enough to satisfy your dependent’s need?
Every individual in his life takes a
insurance policy to protect the interest of his family. But, the really
important question is that the S.A. justified for dependent’s need? Just calculate the total premium and total
S.A for yourself. Do you really think your dependent will survive whole life
with S.A. amount which you have taken?
For Example to explain you: If you
have only one dependent and you have taken insurance policy having S.A. of Rs.
10 lacs and if something happens to you then the nominee will get Rs. 10 lacs.
If nominee put this money in bank fixed deposit having annual interest of 9%.
The nominee will get interest of Rs. 90,000 per year. Please think whether your
dependent will be able survive with this sum of money?
Now, question will come to your mind, How do we achieve
financial security for our dependent in our absent?
Answer to above question is very
simple. You can protect interest of family by increasing S.A. of your policy to
Rs. 20 lacs, Rs. 30 lacs, Rs. 50 lacs or a higher sum of money, this call will
be individual’s call based o no (s) of dependent.
But again important question arises.
If one think of increasing S.A. considering insurance as an investment opportunity
and takes any endowment policy, this decision will land him/her to pay very
high annual premium i.e for e.g if we consider best selling LIC’s Jeevan Anand
policy then annual premium for age of 25 yr individual is Rs. 53,000 (approx).
Do you think it is worth paying such a higher premium?, and
Do we have any insurance product for higher S.A. with less premium?
The policy with a higher S.A. and
less premium is called TERM INSURANCE POLICY.
What is a term insurance policy?
Term insurance is the purest
insurance product at the cheaper policy premium where the nominee gets the sum
assured amount at the death during policy year and there are no benefits like
bonus or loyalty additions at the survival of life assured at the maturity. The
beauty of this product is the high S.A. with much lesser burden of premium
amount as compared to any endowment policy.
We are going to demonstrate how does
a term insurance is better as compare with a popular endowment scheme. The
analysis below also shows you how keeping insurance and investment separate
gives better returns.
Scenario
1
You buy LIC Jeevan Mitra Endowment policy with following
specifications:
Age of the policy bearer: 25 years
Term: 15 years
Annual premium: Rs 69,829
Sum assured Rs 10,00,000
Total premium paid over 15 years: Rs 10,47,435
Amount you get if you outlive the policy term after 15
years: 16,00,000 (it includes sum assured of 10 lacs and annual bonus of Rs
40,000 per year for 15 years)
Scenario
2
You buy LIC Anmol Jeevan Term policy with following
specifications:
Age of the policy bearer: 25 years
Term: 15 years
Annual premium: Rs 2,356
Sum assured Rs 10,00,000
Total premium paid over 15 years: Rs 35,340
Suppose the person puts the difference of Rs 67,473
(69,829 - 2,356) in secure and guaranteed return product PPF (Public Provident
Fund) with a public sector bank every year.
Amount you get from the insurance policy = 0
The amount you will get from the safe PPF = Rs
20,93,063 (approx)
If you invest this amount in an equity linked product
for 15 years the returns will be even better (But this again depends on risk
taking capacity of individual).
What it tells you is that mixing insurance and
investment is not a wise thing to do. You can do much better by separating the
two as shown in the example above. Of course no insurance agent will advise you
to do this since it’s a question of their livelihood. You have to ask hard
questions and do your own analysis.
Conclusion
I am not suggesting you to have term insurance with
PPF account instead of endowment policy as explained above. But, I strongly recommend you to have term
insurance policy for your dependent. You should always take insurance for
others not for yourself.
Endowment vs Money Back Policy
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