Friday, June 8, 2007

Term Insurance - Advantages

In my last post, I advised all to go to Term Insurance. This post is elaborate the same.

First of all, on the safer side, you would have chosen to take insurance. Thats right. But what insurance plan to take. There are many insurance plans available in the market. Which to take?.. Thinking.. Here is the solution.

You should remember that Insurance agent or Financial advisor has their own family and they also have to look for more money. so, they will also go with the company's plan that gives them more income.. Accept it? There are more companies offering insurance and some of them are,
LIC, Kotak, ICICI, etc.,. You can check out the premium for each plan from their website.

Dont take a decision to put your money into LIC or any other as someone told you to do so. Take your own decision after analying all the companies.

Two things you should have to keep in mind.
With Term insurance,

1. you will not get anything back in your life time.
2. Only the nominees will be getting the money, if at all, something happens to you.

It is the perfect plan if you want only insurance, nothing else.

If you analyze all the other plans offered by insurance companies, it will be like, part of the money you invest (actually this is not investing, its spending) towards the plan, goes to insuring you and the other part will be going to get you the returns you want after the term of the plan.

Take this example,

Case 1:
If you invest, say 15000, in some endowment plan(one of the plan, which gives returns at the end of the tenure),
  • part of the money, say 5000, will be going to insure you.
  • The other part will be going to get the assured money back to you.
Case 2:
If you spend, say 5000, for the same sum assured in Term assurance and invest the other part in PPF (for secure returns) or ELSS(for high returns with risk), you will be getting more money in the end rather than this endowment plan.

As insurance companies gains are secure, we can compare it with PPF returns. Note here, you are spending only 15ooo in both cases and getting the returns only after 15 - 16 years and for the same sum assured. If you consider ULIP, consider it with returns from ELSS and term insurance at the mean time as it involves risk.

We will get the real time data into work here..

Case 1:
For 5Lakhs, endowment plan in LIC, just use this to calculate your premium
I just calculated and found the yearly premium to be Rs.33,096. (age in 20's, 5 Lakhs, 15 years)

The returns will be upto 5-6% in case of LIC. we will take the upper 6% to calculate the bonus at the end of 15 years.

Use this calculator to calculate the returns after 15 years. It is Rs. 8,16,562/-

Case 2:
For 5 Laksh, Term Insurance plan in LIC, use the same calculator to calculate your premium.
It will be Rs. 1208 (Isn't it very less ?) (For the same age, tenure etc.,)

Now we will assume the amount (33,096-1208) is kept inPPF every year. Let us see the difference in the returns after 15 years here.

Use the same calculator, to find 31,888 invested inPPF every year. It is Rs. 9,35,093/-

Saw the difference? It is planning that makes the difference. Even though you have the same money, where you put it matters. If the tenure is further increased, the difference will be massive. Also, we have taken the upper percentage from LIC, which will be less most of the times. So always the case 2 here wins.

The other advantages of Term Insurance
  • Very less premium for sum assured.
  • we can stop at any point of time, if we dont have money at that point and dont need insurance but in the other insurance plans you have given more money and you will be losing your money.
  • we can insure ourselves more as the premium is very less.
  • Thats it!..
Just do the research now and find which suits you best from all the available insurance companies.

Keep investing!!!


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  2. hy Manickkam , I appreciate your wisdom ,let me recheck as an agent and will comment again ,all the best ,thanks ,V Muthiah 9444415876

    1. Thanks. Looking forward for your comments as an agent :)