Why You Should not Buy Endowment Plans or ULIPS for Investment

 


Insurance is a means of protection from financial loss. Investing is a means of creating wealth."

Information Sources For Buying Insurance Products

34%Friends, Family & Colleagues
3%Direct contact with bank or insurance company
20.22%      Newspapers & Magazines
8.07%Television
7.30%Internet
19%Intermediary agents

What are ULIPs and Endowment plans?

●They are both insurance cum investment products. Neither of them is recommended as they offer a sub-optimal combination of insurance and investment.

●ULIP is a market-linked insurance scheme where the scheme invests in equity or debt oriented schemes, whereas endowment plans offer a guaranteed benefit called the sum assured.

Why are they so Popular?

  • A lot of people buy insurance in haste and that too for the sole purpose of saving tax and they do so without fully understanding the products.
  • Often the insurance agent is a neighbour, or a friend or, even worse, a relative. It’s kind of difficult to turn them down. So, we end up buying an endowment or an ULIP without giving it much thought. Also, these policies are pushed hard by agents as they involve attractive commissions.
  • Many people see insurance as an useless expense and hence they think it’s better to just buy a product that will give some return as well. Just like they fail to see the effect of inflation, they fail to see the sub-optimal returns from these products.

What's wrong with Endowment Plans & ULIPs?

  • High charges: Endowment plans and ULIPs can have high charges for administration, management, and other fees, which can eat into your returns.
  • Complexity: These products can be complex, with many different options and features to choose from. It can be difficult to understand all the details and make an informed investment decision.
  • Lack of transparency: The charges and returns associated with endowment plans and ULIPs may not be clear, which can make it difficult to evaluate the true cost of these products.
  • Limited investment options: Endowment plans and ULIPs may limit your investment options, as your money is typically tied up in a single product for a specified period of time.
  • Lower returns: Endowment plans and ULIPs may not provide the same level of returns as other investment options, such as mutual funds or stock market investments.

ENDOWMENT PLANS VS TERM PLANS VS ULIPs

Comparative Returns (₹)

AlternativesEndowment PlanULIPTerm Plan + Equity MF
PlanLIC Jeevan AnandICICI Pru Life – Group Growth FundHDFC Click2Protect + ICICI Value Discovery Fund
Life Cover₹4 Lakh₹5 Lakh₹50 Lakhs
Annual Premium₹50000₹50000₹50000 (₹7000 for term plan & ₹43000 in MF)
Maturity Value (After 10 Years)₹7.25 Lakh₹9.16 Lakh₹10.61 Lakh
Rate of Return6.66%10.78%15.96%

Advice
Insurance is an expense and it should be treated like an expense. Don’t mix insurance with investment. Mixing the two will give you less than moderate returns from both.

What can you do now?
(1) There is something called the free-look period that is valid for 15 days. If you are not satisfied with the insurance you bought, you can return it within 15 days of buying and get a refund.

(2) If your policy is older than 15 days, we would suggest you to return it, bear the corresponding loss and buy a term plan immediately. Rest of the money, you should invest in well-diversified equity mutual funds.

For More Details contact us at contact@finviseindia.com or visit our websites:

www.finviseindia.com

www.fvindia.com

Location: India

Comments

Post a Comment

Popular posts from this blog

"Top 5 takeaways from BUDGET 2019" by FinVise India

Image
Finance Minister Nirmala Sitharaman presented her first Union Budget and also the first of the Narendra Modi 2.0 government. Here are 5 key takeaways from Budget 2019: 1) Towards a $5 trillion economy Finance Minister Nirmala Sitharaman opened her speech with a target of making India a 5-trillion-dollar economy. She said that the goal was “imminently achievable" in the next few years. She said India took 50 years to become a $1 trillion economy. The Indian economy was at $1.85 trillion five years back, she added. "We have now reached the $2.7-trillion-mark and would become a $3 trillion economy in the current year," she said. 2) PAN card, Aadhaar interchangeable for filing income tax returns (ITR) Finance Minister Nirmala Sitharaman announced the decision to make PAN and Aadhaar cards interchangeable soon. PAN and Aadhaar have been made interchangeable, allowing those who do not have PAN to file income tax returns (ITR). This means that taxpayers will need either a...
Read more

Why Invest in India?........India – Land of Unlimited Opportunities

Image
Why Invest in India??........ India – Land of unlimited opportunities # Reason 01 One of the world's fastest-growing economies India too remains one of the fastest-growing economies in the world. Source: International Monetary Fund FDI inflows increased by 37% since the launch of Make in India initiative. Source:  Department for Promotion of Industry and Internal Trade, Government of India Leading investors ranked India as the most attractive market. Source:  Ernst & Young Emerging Markets Center # Reason 02 The largest youth population in the world India to have the world’s largest youth population by 2020. Source:  United Nations Population Fund India to be the largest supplier of university graduates in the world by 2020. Source:  British Council India has the third-largest group of scientists and technicians in the world. Source:  All India Management Association & The Boston Consulting Group # Reason 03 ...
Read more

Having an emergency fund can ease financial, emotional pressure.....by FinVise India

Image
**Source: MINT Vidya, an old client, called me at 9 pm once. I found it a bit strange because I do not receive calls from clients so late, but I took the call. She told me her husband, Venkat, who is a heart patient, had to undergo bypass surgery immediately. He was denied health insurance by many companies because of his ailment. In the couple's last review two weeks before, they were asked to keep six to eight months' expenses in a Flexi bank fixed deposit (FD) for any emergency. Unfortunately, that didn't happen. Vidya had stopped working, and to meet daily expenses, they had to stop their systematic investment plans (SIPs) too. Their next option was to redeem the investments they had accumulated to fund their son's higher education. However, the money would take five working days to reach her bank account and the payment to the hospital had to be made immediately. So, she had to borrow money from her brother for five days. In another case, Bharati, a single ...
Read more