A Study on Comparative Analysis of Mutual Fund and Other Investment Options
Why You Shouldn’t ‘Invest’ in Life Insurance
The three reasons people buy insurance is:
a) To save tax.
b) As an investment, to make a good return on their money.
c) To feel good that one has some insurance or to get rid of that pesky uncle who keeps mentioning it.
The fourth — and perhaps most important — reason to buy insurance is to let your family be financially secure if you die. This is the only reason anything should be insured. Car insurance gives you money if your car has an accident, and covers costs for people you might injure. Home Fire insurance covers the damages in case there 's a fire. You pay every year, and you 're happy to not have to claim (because it means you 've not had an accident or a fire!); and at the end, you don 't get your money back.
Not so with Life insurance. The most policies bought are for the purpose of saving or investing, not for insurance. And that, further, is because Life Insurance is hardly ever bought, it 's sold. The sellers get a fatter commission when they sell you a "saving" product, so you don 't ever get to see the real insurance. "Pure Term" insurance is the only real deal: where your family gets paid if you die, and your premium is lost when you don 't). Anything else, usually called ULIPs, Money-back, Endowment or Savings policies, involve a small amount of insurance and a higher degree of saving.
Even if it sounds like killing two birds with one cheque, you shouldn 't mix investment and insurance — because you don 't get enough of either. Take a 35 year old with a monthly salary of Rs. 50,000 and expenses of, say, Rs. 30,000. The minimum insurance expected would be about Rs. 1 crore; the idea is that you need your family to live another 40 years off the money, at a current return of around 8% risk-free and expenses rising at an inflation of 6%.
The cost of a "term" policy of Rs. 1 crore could be between Rs. 15,000 and Rs. 30,000 per year — or Rs. 1,500 to Rs. 2,500 per month, easily affordable. But
The three reasons people buy insurance is:
a) To save tax.
b) As an investment, to make a good return on their money.
c) To feel good that one has some insurance or to get rid of that pesky uncle who keeps mentioning it.
The fourth — and perhaps most important — reason to buy insurance is to let your family be financially secure if you die. This is the only reason anything should be insured. Car insurance gives you money if your car has an accident, and covers costs for people you might injure. Home Fire insurance covers the damages in case there 's a fire. You pay every year, and you 're happy to not have to claim (because it means you 've not had an accident or a fire!); and at the end, you don 't get your money back.
Not so with Life insurance. The most policies bought are for the purpose of saving or investing, not for insurance. And that, further, is because Life Insurance is hardly ever bought, it 's sold. The sellers get a fatter commission when they sell you a "saving" product, so you don 't ever get to see the real insurance. "Pure Term" insurance is the only real deal: where your family gets paid if you die, and your premium is lost when you don 't). Anything else, usually called ULIPs, Money-back, Endowment or Savings policies, involve a small amount of insurance and a higher degree of saving.
Even if it sounds like killing two birds with one cheque, you shouldn 't mix investment and insurance — because you don 't get enough of either. Take a 35 year old with a monthly salary of Rs. 50,000 and expenses of, say, Rs. 30,000. The minimum insurance expected would be about Rs. 1 crore; the idea is that you need your family to live another 40 years off the money, at a current return of around 8% risk-free and expenses rising at an inflation of 6%.
The cost of a "term" policy of Rs. 1 crore could be between Rs. 15,000 and Rs. 30,000 per year — or Rs. 1,500 to Rs. 2,500 per month, easily affordable. But
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