One of my good friend had a small argument with me, that she would not "invest" in Term Plan of Insurance, because she will not get any "returns" out of it. I believe "investing" in a term plan looked a very unprofitable thing to her as she never gets back the money she paid as "premiums" , if she survives.
With respect to Term insurance , she understood the fact that her family will get the money from insurance company in case of her death, but she was concentrating on the fact that she would not get back anything if she survives. What is the return in that case? Nothing !!! , and looked like some one is fooling you with a product called "Term Insurance" , where you are "investing" premiums to get nothing at the end.
Let me now tell why this happens and some give you some insight on this matter.
I have already talked earlier in my last post "Life Insurance and how to go about it" , about Term Insurance . Let me now take more deep dive into it and talk about the reasoning part.
I will first talk about fundamentals of Insurance and then talk about Endowment Policies and why are they popular, and what people don't realise about them. and how Term insurance is the right thing for most of the people.
Basics of Life Insurance
What happens in a average family : There is someone who earns and his family comprises of wife , kids , parents . if not all there is a subset of these family members. The head of the family earns and his family lives happily. All the expenses are met from the earnings of this main member , most of the time the husband. Now consider this person dies in an accident or for that matter because of any event. What happens? What happens to his family members other than the psychological trauma . If they don't have money to take care for them selves ,either some one from family have to take up the job and start working which may not be possible for them, or They have to decrease their standard of life to maintain the expenses . They are now totally unsecured from future's point of view. In short they are totally messed up , which should not have happened. I gave this detailed explanation for the circumstances because i wanted you to understand how bad can happen and proper measures must be taken care for this.
What is the Solution?
Adequate Coverage !!! , this cant be compromised... You must have a backup plan which can give your family the same kind of income which confirms that they are not short of money in case the main earner is gone. If there are some debts like Home Loan , or any other tasks which need money apart from regular income , the cover must be good enough to cover that too..
For example : Robert has a family expenses of 25,000 per month and there is a Home loan of Rs 25 lacs to be paid within 10 yrs. He is 27 yrs old. He has a wife , 2 kids and parents. All of them are dependent on him financially. He has investments of 5 lacs. Now in this case. In case he dies , who will take care of Home loan, how will provide them enough money to live life comfortably. They need 25k * 12 = 3 lacs per year. which they can get per month if they have 35-40 Lacs of money . If they put this in bank , they will get Rs 25,000 per month as interest which they can use. Considering inflation it will not be enough after some years , but lets leave it now for this example. Add home loan of 25 lacs to this 40 lacs and what we come to know is that this family must be covered with minimum Rs 65 lacs . Rs 75-80 Lacs is a decent cover for this family. Now if he takes a cover of 80 lacs for his family, from that day he can happily live all his life without any tension , thinking what will happen if he is not there. He will be attain peace of mind , and not be worried for it. He must get a lot of internal peace because his Family is protected with a good enough cover to take care for them . And this is what you get in "return" from Insurance. No monitory return can give you more satisfaction than peace of mind.
So before doing anything else , his first step is to give adequate cover to his family and that's the most important responsibility for him as a Husband , Father , Son . He must understand that this is not an investment for monitory benefit later in his life , but its for his family happiness and future.
One point to remember and not forget is that this is the minimum cover required for family and anything less than this will be taking risk with family future.
Term Insurance Policies
Lets discuss the features of Term Policies with respect to above example.
Cheap Premium : The premium is very low for Term insurance Policies. For above example . The yearly premium for Rs 75 lacs cover for 25 yrs is just Rs 20,000 yearly or just 1,600 per month !!! . This is in any way affordable for most of the people. Its providing the fundamental requirement of Good cover and low premium and if you think of returns , Good cover and low premium can themselves be seen as good enough return. You family protection at low cost is the return you get.
Opportunity to invest rest of the money in High return Investments :
With term Insurance you save a lot of money in premium and now you can invest this money as per your wish in high return instruments , anyways in Endowment policies you put money for long term and you get it after so long time. So you can now always put your saved money in things which are long term investment products and return great returns.
One of those things is Equity Diversified Mutual funds and Direct Equity (depending on persons ability and interest). In long term Equity Diversified gives fabulous returns (15-20 yrs) and the risk is minimised because of long term. And if you consider India growth story , it looks great in long term , hence Equities for long term is the most obvious choice . They will give you return of 15%+ CAGR. (15-20 yrs)
Also it will be flexible , you can not invest for a year or two , if you want to use the money for your family vacation or some important event.
Conclusion :
Insurance is not an investment product , its a Protection instrument for your Family or any one your want to cover. There are other products for your investments .
Let your finances be the way you want your life to be , SIMPLE !!!
Don't mix Insurance and Investments.
Contact VCare Financial Solutions : 9869629086
No comments:
Post a Comment