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
I liked your point "In India insurance is sold not bought ( it is slightly changing now a days due to awareness and availability of online term plans.)"
ReplyDeleteI was also approached by many agents before I bought i-life an online term plan from Aviva.
This is very good thing happening that individuals are going for term plan.
ReplyDeleteGood to hear that you had taken the Pure term plan.
It is a very good move.
An Traditional Endowment Plan India is a life insurance contract designed to pay a lump sum after a specified term (on its 'maturity') or on death. A traditional life insurance policy combines a life insurance cover with investment. It has a longish tenure with annual premiums - often for 15 years or more. The focus is towards safety and keeping the corpus safe, even if this means lower returns.
ReplyDeleteGreat Stuff on your website. Insurance is required when you have someone financial dependent. So if your wife is not earning and no one is depending financially then not required. Yes, even if death occurs due to death this your nominee will receive the sum assured you opted. Currently at your age you may feel natural death is a rare case. Traditional Endowment plan works as a combination of insurance and investment.
ReplyDelete