Do not mix Insurance and Investment

 

हिंदी में यह आलेख देखने के लिए, यहां क्लिक करें

Please read this article to understand how one loses money by mixing investment and Insurance.

There are a lot of products in market that offer Money Back along with Insurance. These products expect you to invest some big amount over long duration; in return they promise to provide you insurance benefit as well as guaranteed return at the end of the promised duration. Let us study one such product.

At the age of 42, I was contacted by one agent for providing Investment cum Insurance plan. Details of the plan follows:

  1. Invest Rs 46000 per year for 22 years.
  2. You will be provided insurance of Rs 11 Lakhs for 25 years.
  3. In case of death anytime during the policy period, you will be paid Sum Assured (i.e Rs 11 Lakhs) + Accumulated money.
  4. If you survive the policy duration, you will be paid Rs 25 Lakhs (i.e after 25 years).

Here is the calculation chart of 25 years based on above facts:

If you calculate return from the above plan, it would be around 6% per year.

Now, let us separate out Insurance part and Investment part. A 42 year old person can get Term Insurance of Rs 11 Lakhs for 25 years in about Rs 3000 premium. Hence, take a Term Insurance of Rs 11 Lakhs.

Now you are left with Rs 43000. Invest this Rs 43000 in Mutual Fund. Mutual Fund has given average return of over 20%+ over last 20 years. Let us assume that over next 25 year, Mutual Fund may provide 15% return on an average. Let us see how the return calculation looks like:

As you can see, by keeping Insurance and Investment separate, you can generate 4 times return (Rs 1.03 Cr) in long term assuming average market return as 15%. Please note that returns from Mutual Funds are not guaranteed but over long term risks are neutralized and returns are good.

If Market provide return of 12% on an average over next 25 years, you can still make more than 62 Lakhs of return (along with Insurance), i.e more than twice the amount committed by traditional Money Bank policy.

Hope you like this analysis. Please provide your feedback.

Happy Investing. Click HERE to start your paperless investment today.

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