Endowment (Traditional) insurance plan, weather it is good for you?

Life insurance is easily accessible tool in India, which is considered and accepted as investment tool nationwide.( ? )

There was a trend 5 to 6 years back of selling ULIP’s but the trend is changed now days towards selling Traditional policies. Now clients are wondering why this shift had happened? The companies or the agents who were confident on ULIP why today are not confident about same?

Whatever it is a ULIP, (where the all types of costs are disclosed to clients) or traditional (where no cost is disclosed to clients) you have to understand some basic things and then analyse weather it is really an investment tool or not, I would like to help you in same and want to put some point in front of you.

1.     The main purpose of Insurance is protection, in life it is about protection of the income generating capacity of Individual.

2.     In insurance is distributed by distributors who come in different avatars like Agents, Advisors, Brokers and Banks who are remunerated by the commission on selling of insurance products.

3.     In India insurance is sold not bought ( it is slightly changing now a days due to awareness and availability of online term plans.) and because of this the intermediaries are paid handsome commissions to continue and get motivated to sell policies and thus the cost to company is high.

4.     These costs are loaded on the premiums because these coasts are passing on to clients.

5.     So your premiums do not include only the premium but much more than pure premium.

6.     It means that you are paying for all these expenses from your pocket every time, the purest form of life insurance do have a portion of costs in to it however it is less because of the small amount of premium.

What is a result for you   

From above points you can make it that in traditional policies also you have to pay lot of expenses from your pocket which may not be in your interest. So the amount which you are paying is not invested 100% in investment.Thus these traditional plans yield less returns as compare to the pure investment instrument like PPF can yield which also gives you tax free returns.Thus buying a traditional insurance plan either you are not getting returns or not getting enough cover which is required for you. 

What you should do?

Do not mix two different things, insurance and investments don’t taste good like Mango and Pista mix ice-cream.Both of these instruments are made for different use.

Investments: For wealth creation.

Insurance: For wealth protection.

Keep both of these things separate and consider insurance as an expense not an investment.

 Your views are welcome.  Did you get the answer ?

 

About the author : Ashish Ramesh Bhave is a CERTIFIED FINANCIAL PLANNER, focused and specialized in financial planing for individuals and families. Can be reached at arbfinancials@gmail.com or Cell : 08793107044