Hi All,
Insurance and Investments should always be kept separate.
There are ULIPs, Moneyback and Endowment Policies in the Market which provide Insurance cover and at the same time provide Returns at the end of the term.
There are term policies which provide only Insurance cover and nothing when the policy term ends.
Apparently, the first option seems better and also, the insurance agent would also tell you the same, but that is not the case.
The following example shows you why.
This is a comparison between LIC's( http://www.licindia.com)
Term Policy – Amulya Jeevan – Plan 177
Features: Pay, Get Insured and Forget. You pay a certain amount each year. You do not get anything at the end of the term of the policy. This is similar to Car/Two-Wheeler or Medical Insurance.
Endowment Policy - Jeevan Mitra(Triple Cover Endowment Plan) – Plan 133
Features: Pay, Get Insured and Get Returns. You pay a certain amount each year and if you live till the completion of the term, you get the Sum Assured+ Bonus.
Here is an example to show the comparison in a better manner.
Endowment Policy - Jeevan Mitra(Triple Cover Endowment Plan)
Age at entry: 35 years
Policy Term: 25 years
Sum Assured: Rs.5, 00, 000/-
Premium Paying term: 25 years
Mode of premium payment: Yearly
Annual Premium: Rs.27, 266 /-
Returns:
In case of completion of Term: Rs. 5, 00, 000+ Bonus(This is a variable component, approx 5 to 7% of the sum assured for each year of premium paid which is Rs.6, 68, 563 to Rs.9, 02, 871)+ Life
In Case of Death your family gets
Natural : Rs. 10, 00, 000+ Bonus(This is a variable component, approx 5 to 7% of the sum assured for each year of premium paid)
Accidental: Rs. 15, 00, 000+ Bonus(This is a variable component, approx 5 to 7% of the sum assured for each year of premium paid)
Term Policy - Amulya Jeevan
Age at entry: 35 years
Policy Term: 25 years
Sum Assured: Rs.25, 00, 000/-(For a cover this huge, in case of a Moneyback/Endowment policy you would pay about Rs.1, 25, 000 as premium)
Premium Paying term: 25 years
Mode of premium payment: Yearly
Annual Premium: Rs.10, 925 /-
Returns:
In case of completion of Term: Life
In case of Death our family gets
Natural : Rs.25, 00, 000
Accidental: Rs. 25, 00, 000
Effective Cost= Rs.10, 925
The Calculation
The difference in the premiums you pay every year is(notice the difference in the Insurance Cover you get)
*Rs.27, 266 – Rs.10, 925= Rs.16, 341
If you start investing this money(Rs.16, 341**) every year in NSC, KVP, PPF(Fixed Return Instruments) you earn a compounded return at 8% per annum.
At the end of 25 years this would come to Rs. 12, 02, 914/-
If you start investing this money(Rs.16, 341) every year in MFs/Stocks and conservatively assume a return at 12% per annum.
At the end of 25 years this would come to Rs.22, 08, 573/-
So in any case(Your Survival or Death), you or your family would be at benefit if you opt for a Pure Term Policy.
