Once you get a job, this is the most common life choice we meet with!! One of our relative is always a Life Insurance agent. This agent comes along with his brilliant investment plan. Invest some X amounts every year, up to Z years. You get life coverage of Y amount for Z number of years. And the climax goes as below,
you get all the money along with interest back after Z number of years. And you get tax benefit all along *agent winks*
Awesome, Isn’t it?
*beep* Awesome!!! Before you think about opting for life insurance policy, you need to follow simple checklist given below.
- Do I have any liabilities? Is anyone dependent on me now or in future?
- What is life insurance? What should I opt for? Endowment plan or Term plan?For how long I need an insurance? What will be the return on investment?
First checklist– Do you have parents, spouse or kids who are completely dependent on you for their financial needs at present or in near future? Do you owe any property loan or any kind of loan? Are you in debt? If your answer is YES then go and read 2nd checklist else exit this post and also forget about getting life insurance policy 🙂
Second checklist– Life insurance is “An insurance that pays out a sum of money either on the death of the insured person or after a set period”. Understand the definition properly. Life insurance is done only for protecting your loved ones in case something bad happens to you, please do not term it as a savings plan or investment plan. There are 2 common types of plans, endowment plan and term plan. In endowment plan along with life coverage you will get the amount paid on due course of time at the end of tenure. In term insurance plan you will not get any amount back, only life coverage, at the end of your tenure. This is what your insurance agent will tell you. Listening to the above you will certainly think that endowment are sexy. Well it is not the actual case. I know getting your money back at the end of tenure is sexy but you need to look at life coverage you get and also about return on investment. Thumb rule: Never opt for 5-10 year private life insurance endowment products. It sucks big time.
Endowment plan – 15 years – 60,000/- annual premium – coverage 10,00,000/- (After 15 years you do get your money back with average interest rate of 5-6%) (Your loved one gets 10,00,000/- if something bad happens to your life) (Return on investment of mere 5-6% is even less than a fixed deposit, on average FD gives you 9%, RD 8.75%, Equity 13-15%. This is worst form of investing)
Term plan – 30 years – 7,000/- annual premium – coverage 55,00,000/- (After 30 years you get nothing in return) (Your loved one gets 55,00,000/- if something bad happens to your life)
Now what I want to tell you all is, if you can pay a premium amount of 60,000 every year, then pay 7,000 to term plan and the remaining 53,000 into mutual fund or equity (13- 15% return). In long run this will be best investment, mark my words. Cheers to money!
Wise man once said the below “Endowment policies according to me are totally incorrect and worst product i have ever seen (ULIPS are not far behind) . It is structured and presented in such a way that investors are attracted to it . Agents present them in such a fancy way and give judgement’s which make these policies look like must have products” – Manish Chauhan