Be sure before Insure

Why we insure our life ? There may be plenty of reasons but the prime cause is protection for eventuality. If the earning member passes away, the loss of life can not be compensated at any cost but the financial assistance that he used to provide to run the family also dries up. To support that flow in the need of crisis is the Insurance.

In our country people think otherwise, they consider insurance just another tool for investment. In most of the cases people go for endowment policies where they estimate the maturity value instead of the protection. In this way the premiums goes higher for same insurance cover than pure insurance and people actually neither benefits from insurance, nor the return from their investment.

So, what is the way out ? Simple, consider pure protection plans, popularly known as Term Insurance. In these plans you can get much higher insurance cover over a small amount of premium and in the most desirable condition, that means you survive the full term, no return for your premium payments. Just in the line of Mediclaims !

It means the amount you were likely to buy common endowment policies, divide it into two parts, pay the smaller part for term insurance without expecting any return and the with the larger part, invest in a REAL investment product like BANK F.D., Mutual Fund or stocks. But you may think why this idea is not so popular ? Reason is simple, the low rate of commission discourage the agents to actually sell the product ! And most of us buy insurance by motivated by those agents for their own benefit. Consider the case below before you decide.

Mr A buys conventional endowment policy at the age of 31 of Sum Assured Rs 10,00 000 for a 25 year period. His yearly premium stands Rs 37,080(without Service Tax) and the total outflow in 25 years comes to Rs 9,27,000. And his maturity amount is assured Rs 10 lakh + Rs 5,62,500 (anticipated yield @6% per year). [The anticipated return is calculated at lower rate as only a little portion of the premium is used for investment purpose and the larger part is the expense to carry the risk. The return is taken from a leading Insurance Co. site.]

Mr B buys a Protection Plan (Term Insurance) at the same age, same sum assured and for same period. His yearly premium stand only Rs 3371 (without service Tax) and the total outflow in 25 years come to Rs 84,275 only and there is no maturity value. The balance amount (9,27,000 – 84,275) 8,42,725 if invested(monthly installment of Rs 2800 for 25 years, compounded annually)  even in safe investment like Bank F.D, it will be as high as Rs 31,40,000 Yes you read it right , it is above 31 Lakh !!!!

Amazing !!! Could you guess it before ? Yes, that is the magic. With the same amount spent by Mr A and Mr B for same number of years with same insurance cover, Mr B is gifted to over Rs three crores for just excercising the RIGHT choice.

So, take the proper decision after considering all aspects yourself, not motivated by the agent. After all, it is your hard earned money.