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When you Invest your money, you part with your money today to get something in return tomorrow. whereas when you get insurance for something, you expect to get financially covered in case an unforeseen event for which insurance is taken occurs.
Thus, term insurance is a pure insurance product, it is not for your living but in case you die, you get the money. According to us, Term Insurance is the cheapest and best way to insure your life.
However, many people feel otherwise and believe that they want to put money in insurance only when they are guaranteed that they shall get something in return either alive or dead. In this bargain, you are just investing (with insurance as add on) but not getting adequate insurance for yourself.
We have already discussed, how a Term Insurance must replace you Financially and how to compute the amount of your sum assured in the article – how to compute your sum assured.
In spite of this many people believe otherwise and want to get returns for their insurance.
Let us understand the same with an example
If you spending INR 5000 for your insurance needs each month.
Case 1 – Where you buy a Life insurance product in which you get an amount on maturity where you do not die like a basic money back policy or an endowment plan.
|Premium Per Month||5,000|
|Premium Per Annum||60,000|
|Number of years covered under the policy||30|
|Total Premium Paid||18,00,000|
|Sum Assured under this Policy||70,00,000|
|Amount received on maturity if the person survives||55,30,890|
The Rate of Return, in this case, is 6.5%
Case 2 – When you buy a Term Insurance and invest the balance amount in a mutual fund.
|Term Insurance Premium per month||850|
|Term Insurance Premium per annum||10,200|
|SIP premium amount||4,150|
|Mutual Funds Investment per annum||49,800|
|No of years covered under insurance and investment||30|
|Total Investment Amount||14,94,000|
|Sum assured under this policy||10,00,000|
|Amount received if you survive|
|Mutual Funds Investment||3,46,16,398|
The Rate of Return, in this case, is 15%
Comparison between the 2 cases are as under:
Wealth Cafe actionable – This article is to give you an idea of how important and cheap term insurance is. Buying endowment plans for your insurance needs could be expensive. However, getting an endowment plan for a low-risk investment option could be considered by you for your investment needs. It is important to know the exact return % you are getting from these investments and then, take a decision.