“Harsh Facts!! Wait what?? What is Endowment and Money Back Policies, I am not getting. I have taken only LIC Policies” asked curious Ravi (a software engineer) to his friend Sunil (a financial analyst)
Sunil (smiled and asked) “May I know Where you have you done your Investments??
Ravi: I told you na I have taken Lots of LIC Policies.
Sunil: There you go, you have taken the Endowment and/or Money Back Policies.
Ravi: How?? I am not able not understand.
Sunil: As you said you have done Investments in LIC which comes with Pre-en build Insurance so you have mixed the Features of Both Pure Insurance and Pure Investment. You are not getting benefited both the side and will end up with very less amount.
Ravi: But, that is the Plus Point na, I took Insurance and Investments within the same Premium.
Sunil: Actually, that is the most painful thing in the whole story
If you want to grow your money to it’s utmost potential invest your money in such a product or Investment Instrument where you can truly grow your money.
In other case, If you want to Insure and Secure your family from Future unforeseen. Buy Pure Insurance Product that is Term Plan. The Benefit is that the Premium is the Lowest and the Cover is highest (Ideally Buy the Cover of at least 10 times of your Annual Income).
Ravi: If I buy both the Products separately, It will be more costly as I will have to pay the Premium for Insurance and Monthly Amount for Investment also the fees will be charged by the Financial Planner!!
Sunil: Well, actually the Case is exact opposite of it
After Paying for your Insurance Premium and Keeping aside Investment Amount along with the fees, you will be in much more better position as your Investment returns will generate to it’s potential return over a period of time that all the expenses will be very smaller in front of that.
Ravi: Sounds Nice yar!! Could you give one example taking my Policy into consideration??
Sunil: Yeah sure, Let’s take an example of An Endowment Plan
Case 1: Suppose, Mr. A takes an Endowment Plan with Sum Assured of 25 Lakhs for 25 years. The Maturity Amount after 25 years will be around 50 Lakhs. The Annual Premium will be around Rs. 1 Lakh (Monthly Premium Rs. 8,500) So, if anything happens Mr. A during the Policy Term, he will get Rs. 25 Lakhs and if nothing happens to him then he will get Rs. 50 Lakhs after 25 years.
Ravi: (with Happy Face) See, Mr. A’s money gets doubled if nothing happens to him.
Sunil: Yeah sure, Now Let’s see the another case.
Ravi: Yes, go ahead
Sunil: Let’s see Another Example
Case 2: Suppose, Mr. B decides to go for Pure Investment and Pure Insurance both separately.
He takes Term Plan as Pure Insurance with Rs. 500 monthly premium and invest the remaining amount Rs. 8, 000 in a good SIP. Mr. B also continues the same for 25 years just like Mr. A…
Ravi: (Interrupting Sunil) So, what Mr. B gets in return??
Sunil: I was coming to that only.
As Mr. B has taken the Term Plan, it has cover of Rs. 50 Lakhs and invested the remaining amount which can potentially generate around Rs. 1.7 Crores, taking 12% average rate of return into consideration.
Ravi: Sunil, Don’t tell that you are kidding. I just got my goosebumps.
Sunil: No Ravi, I am not kidding at all.
Ravi: Mr. B is in Win-Win Situation. He not only got “Double Life Cover” but at the same time he could also Accumulate the Corpus more than “7 times” in the same span of time.
You have opened my eyes Sunil. I am lucky that I have a friend like you who guided me on correct time.
Today, I learned that We should Keep Insurance and Investments separate to Enjoy the benefits of both.
Sunil: I am Happy to share knowledge with you Ravi. See you.
(The Communication stops for the day and Both goes back to their Offices)
(MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS READ ALL SCHEMES RELATED DOCUMENTS BEFORE INVESTING)
If you find difficulties in above, hire someone who can guide in your interest.
We look forward to your feedback and comments on the above article.
The Author Laxman Agrawal (BMS Finance) is AVP with Nidhi Investments, Mumbai. He may be contacted on Laxman.email@example.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)