Ask about an insurance policy from an agent and they will ask you to buy it for the love of the god. It is evident that life insurance is essential but that doesn’t complete the picture. Talking about investment, a life insurance is a good investment if done according to your needs.
Many companies have even designed the products so as to make it look like the dollars over the pennies. The reality of this has to be wisely understood.
Every insurance policy has three components. One which contribute to the insurance, second which contribute to savings and third which contribute to the profit to the insurance company.
Ms Pooja who works for a life insurance company as an agent was playing with words to convince my family to get a plan on my life. Being an expert in this field, I asked her about the relevance of any plan when I am covered under my employee group Insurance Scheme and told her about the technical aspect of insurance.
I am not against the insurance and will definitely invest in it but there are many important things one should take care about while purchasing it. When it comes to investment decision, it is very easy to park your money at one place but it is very essential to check that what is happening to the money in there.
How much insurance does one need?
If you’re planning to set the limit for the sum assured, life insurance has many options. But the purpose of life insurance is clear- to provide family with financial support in case of your demise. Buying an expensive product will not only increases the amount of premium but also makes a policy vulnerable to lapse. Future is unforeseen and present situation is unavoidable. What is the benefit of insuring for more than you require and facing financial difficulties now?
As per the insurance guidelines, sum assured must have to be roughly equal to twenty times your current salary.
What type of insurance does one need?
Ask a layman men about purchasing a term insurance policy and the reply you’ll get,”why should I pay for something I’ll never use”. This has always been a problem with insurance product and the reason for inducing saving element into the Insurance.
But a smart investor should know that insurance provide a return of roughly 5% while equity market provides the average return of 8% on the investments. But if you consider that you don’t have resources or expertise or you can’t bear the risk, there is still no harm in buying endowment or unit link insurance product.
Is Extra premium over weighs the tax benefits?
I don’t think that you are saving tax but spending too much on the premium and considering yourself as investment guru. Money is money, irrespective from which source it comes.
Many people up till now might have concluded that entire insurance program is like ‘scam’. But as the saying goes, if you are a hammer, everything looks like a nail. Insurance is one of the basic financial decision on should make. A proper weigh of pros and corns is still essential for deciding whether your insurance policy is a correct investment for you