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Yogi Zone

Useful articles for your finance management by our team of experts

investsurance stay away from it

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Investment and Insurance are two words which you can’t escape from these days. There are N number of insurance policies and investment options today, which have only increased the confusion among the investors. Which policy to take? What Investment to make? These are some of the common questions that an average investor is faced with.

I have a friend who used to tell me that traditional policies are the best since they gave protection as well as returns in a single go and that Term insurance was useless. I knew that he was a man of stats. So, I decided to prove him wrong with some stats. I gave him a simple comparison of two people named

Rajesh and Mahesh who are 29 years old.

Rajesh had taken a traditional policy. The details are as follows:

Sum assured: 1,00,000

Yearly premium: 4346

Bonus:  1,37,500

Policy term: 25 years

Payment term: 25 years

 

Rajesh would be paying a total amount of 1,08,650(4346*25). On maturity, he would be getting a total amount of 1,00,000 + 1,37,500 i.e; 2,37,500.

 

Now, let us have a look at Mahesh who has taken a term insurance and invested in various equity and debt financial instruments. The details are as follows:

 

Sum assured: 10,00,000

Yearly premium: 1000

Policy term: 25 years

Payment term: 25 years

 

Mahesh would be paying a total amount of 25,000. Remember, he is also able to save some amount by taking this cheaper term plan. He is investing that balance amount of 3346(4346 – 1000) in various equity and debt financial instruments. Even assuming a most conservative return of 10% p.a in 25 years, he is able to accumulate 3,29,069 which is about 91,569 more tha the maturity amount which Rajesh got in his traditional policy. 12% return would give him 4,46,135 which is 2.08 lakhs more than the amount from traditional policy.

Finally, my friend agreed to my point that Insurance is meant for protection but not investment just like apples are meant to eat but not to play.  Hence, stay away from Investsurance. Hope this would help you in not falling for your insurance agent’s magical words.

 

By A.V.Suresh , Our In-House Financial Planner

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