Buying Life Insurance and also expecting return from it is very stupid idea. Insurance was first introduced to provide financial help in case of Death of Earning member. But over the time many new variant of this products introduced like Money Back Plan, endowment plan etc . This products are mixture of Insurance and Investment but they lag in both parameters , neither they provide sufficient insurance nor their return on investment is above the par.
Let’s straight jump to example of few LIC policy:
(All data base on assumption that person is healthy, non alcoholic , non- smoker).
New Jeevan Anand:
Entry age: 25 years
Term: 25 years
Premium: 21472 INR Yearly.
Total Premium: 536800 INR
On maturity (SA+ Bonus): 1337500 INR
On Death: 625000 to 1578750 depending on Premium paid.
Return on Investment: 6.4 % Yearly.
CAGR: 3.89 %
Entry age: 27 years
Term: 18 years
Premium: 52455 INR Yearly.
Total Premium: 944190 INR
On maturity (SA+ Bonus): 2108000 INR
On Death: Up-to 3208000 depending on Premium paid.
Return on Investment: 5.8% Yearly.
CAGR: 3.89 %
Jeevn Tarun (Child Future Plan):
Entry age: 3 years
Term: 23 years
Premium: 25451 INR Yearly.
Total Premium: 432667 INR
On maturity (SA+ Bonus): 1103000 INR
Return on Investment: 6.73 % Yearly.
CAGR: 4.15 %
All above plans compound annual growth rate (CAGR ) fall below 6% and inflation rate is 6-6.5 % historically. This means with time this plans downgrade the value of investment as their return are below inflation rate. Also Insurance cover is not sufficient.
Now Lets Take how better insurance and investment can be planned with similar investment.
Term Plan (Age: 27, married): Life Cover 1 cr with Premium of approx 10000 INR yearly.
SIP is Blue Chip Mutual Fund: 3000 INR monthly with expected CAGR 13% – 18%.
At 13% CAGR, value of Investment after 20 years: 34.7 lac.
At 18% CAGR, value of Investment after 20 years: 71.7 lac.
With 46000 INR yearly Investment , both Insurance and Investment goal can achieved better way then any other plan. Don’t buy investment product, buy investment solution.
Be Smart. Invest Smartly.
Disclaimer: Please take advice of your financial advisor before any investment