Let’s start with the most basic question. What is the purpose of insurance policies? Are you buying insurance to cover the loss of an asset insured or for investment purposes? Is it for all three? It could be for all three.
Which is the best way to approach insurance? Insurance policies are only meant to be used for insurance purposes. This is the important thing to remember. It is not an investment tool.
First, you should not buy insurance just for the sake of insurance. Insurance is essential to protect your financial future. It is clear that insurance must fulfill the “insurance” promise. So, what policy should you choose? There are two types of insurance plans. Pure term and endowment plans. Only TERM INSURANCE is the best plan.
Term Insurance is the most basic type of insurance. It provides life coverage to the insured for a nominal premium and does not offer any survival benefits. If we are to survive, wouldn’t it mean that we would lose all our money? Let us explain why term insurance is the best type of insurance you can buy.
1. Meets your life insurance needs at the lowest premium. Term plans offer life coverage at a lower premium than endowment plans. You can take, for example:
LIC Anmol Jeevan Term Plan: Premium for a male aged 30 years, SA of RS20lakhs, and Rs 7578 per annum for a female aged 20 years. The premium for the same person who takes an endowment plan worth Rs 20 lakhs would be Rs 95910. You can see the difference.
2. Lower fees than Endowment Plans. The greatest disadvantage of endowment plans is their ridiculously high price structure. Term plans have the greatest advantage, however, in that they are relatively inexpensive. In the first few years, endowment plans can consume 50-60% of your premium in charges. Afterwards, charges will be higher than term plans. These charges can be referred to as admin fees, mortality charges, and fund management charges. This is due to the fact that agents selling endowment plans have to make huge commissions. Buying a term plan can help you avoid such high fees. Simple.
3. Let’s play “Buy Term & Invest Rest Strategy” – I said at the beginning that it was not wise to view insurance plans as investment tools. The reason is that there are better options that offer higher returns than insurance plans. So if you want to insure yourself and get some returns, the best option is to play “Buy Term & Invest Rest Strategie”. If a 30-year-old male needs 20lakhs of coverage, he can buy LIC term insurance for Rs 7578. Then he can invest the difference (Rs 9510-7578) in an equity diversified fund that will return at least 15%-18% over the next 20 years. A well-diversified equity fund will give you greater returns than any insurance plan. Reliance Growth Fund and HSBC EQUITY are just a few of the excellent equity diversified mutual funds.
My advice is to you, friends: You MUST get insurance for yourself and others. I mean insurance only in the Term Plan.