Money-back/Endowment Policy Tips
Insurance is not an Investment
The insurance industry in India has not penetrated to the level it wanted to and even those who are insured, lag a long way behind the nominal insurance cover. Frankly Speaking how many of us thought Insurance as Insurance? The major chunk of the population believes Insurance as an Investment Product, Insurance as a tax-saving avenue. But it neither serves tax-saving or investment as its primary objectives. Unfortunately people never realize that and when they realize that they have missed the boat by a mile.
Agent informs me that I need to pay 25k / year for 20 years of which you can avail 80C for the entire 25k/year. In return I get around 10 lakes after 20 years. So do you think it’s a good deal? The truth is its one of the bad deals you will ever get when you think of Inflation, Money valuation.
This is where most of us fell as a prey to those insurance agents – the thought of doubling your money – the greed comes in and for a moment we forgot the math’s, equations – out of sheer excitement most of us apply for the useless policy.
It’s always better to get X rupees today than to get 2x rupees 20 years later.
Common mistakes people do when they opt for a Life Insurance policy
- People get the insurance policy around February-March just to show investment proof and reduce the tax-burden. But how naive are we? Instead of paying the tax annually we get into a long term commitment like insurance for 20/25 years. Their money gets locked in for 15/20 years and it becomes illiquid.
- Tax-saving is the by-product you get and this should not be criteria to choose any insurance products.
- People are forced to get an insurance policy just because they have a very close relative/friend who works as a Insurance Agent and they cannot offend their friends/relatives by saying “NO”.
- We rarely read the forms, terms and conditions and policy documents and I knew most of us will just put a signature on X mark. Have we ever cared to read the forms once?
- Since application form is filled by agent there is a greater chance that he might miss trivial personal/health information of the insured. This might lead to the insurance claim being rejected when the beloved family needs the money desperately to move on.
- Have we ever thought of a car/two-wheeler Insurance how it works? We pay premiums annually but do we ever get the money back after X years. NO – we get money only if there is an unfortunate accident. So why do we expect some money from Life insurance after X Years? Is it something like we value our automobiles larger than our human life?
- Some people think that they are too young to get insured and they start their life insurance only at a later stage in their late 30’s.Please do remember your premium increases exponentially as your age increases. Some think it’s their first and foremost duty to insure their entire family including their new-born, on-working spouse or their retired parents. This does not make any sense because Insurance is a long term investment and when your money gets locked in for 10/15 years you missed some serious investment opportunities where you would have made money otherwise.
- We expect some money to be returned to us at the end of the survival period, no matter how small the amount is. Please do your maths and you will soon realize how ignorant we were? Are we really dependent on that meager amount after 20 years?
Please try reasoning the above points and I sense that most of us will be under-insured (<10 lakes) but by paying a higher premium (around 30-35K per year).
So i suggest the readers to take some time of their own and read more about “Term Insurance” – a pure life cover product which has not got its due attention it deserved. This flavor is available across all leading insurers.
Now i m insured for 100X time with term insurance when compared with traditional money back/endowment plans for a much lesser annual premium.