Insurance and Investment – How to choose?

Often I have seen that people do good homework for buying a mobile phone or laptop but not much when it comes to the financial decision like insurance or investment. The main reason behind it that too many products are being offered by an insurer and every product has a too lengthy description, many time wrong selling of some products by insurance intermediary. In case of investment in India, people are comfortable with traditional tools. Here we are trying to simplify insurance and investment, so anyone can wisely take better decision.

Basic plan understanding
Term plan is pure insurance plan, other are hybrid of insurance and investment. From a long time, LIC is the leader in insurance products and most popular plans are endowment and money back plans, so we will simplify these plans because other are also nearly same hybrid product mix.

Insurance + investment Insurance + investment Pure insurance
At the end of policy sum assured (cover) + bonus Fixed % of sum assured at regular interval and balance sum assured + bonus at end of policy No return
In case of death, sum assured In case of death sum assured In case of death sum assured
Policy cover life-time Policy cover till maturity Policy cover till premium paid max age of 65

Above are the most basic difference between these policies. So if you need insurance and money back at maturity of the policy, you should go with endowment policy. If you need some money at regular interval for financial need then you should go with money back policy. Term insurance is pure coverage and you will not get any money back at the end of the policy term.

What’s happening with your money?

Company Plan Sum assured Year Premium paid Maturity amount Return % cagr
LIC Endowment(815) 10,00,000/- 21 54720/- 21,50,000/- 6.47%
LIC Money back(820) 10,00,000/- 20 77138/- 18,20,000/- 5.41%
LIC Term 10,00,000/- 20 4,071/- Nil Nil

Average inflation in India is about 5.8% so far. Now it is your time to think what actual return you are earning by hybrid products????

Keep pure – Grow more

Insurance is meant to protect your family again any unforeseen event. Everybody must go for it but with pure term plan and sufficient sum assured to meet future expenses.

In above case, you can get an insurance cover with a little amount of 4,071/-, and remaining amount can be invested to earn a better returns like equity mutual fund. Equity mutual fund has generated CAGR return between 12-15% in long term.

If you are able to invest 60000/- for investment and take term plan which is 4071/- (amount considered from premium of hybrid plans approx) and expect return of 12% (which is conservative scenario) then corpus after 20 years would be around 50,00,000/-……

The Decision is yours!!!!!!

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