Good article indeed. Only one clarification is required to make it all encompassing.
The insurance premium which is paid comprises of below mentioned 4 components :
(A) death-risk premium
(B) Admn Exp of Insurance Co.
(C) Agent's commission and
(D) Savings component
A premium paid on a pure "Term" Assurance policy without return of premiums paid, comprises of components A, B & C.
Whereas, policies which give a "maturity" benefit will include component "D" as well. And that's why their premium amounts are far higher compared to a pure Term Assurance policy.
The Insu.Co. invests this component "D" and gives "maturity" benefit to the insured out of this. Bonus (an extra icing on the cake), is paid out of the surplus generated by the Insu.Co. over and above their liability to pay out the "maturity" benefit.
So, in essence, the Insu.Co. collects a "higher" premium from the insured (component "D") and gives it back to him after efficiently managing/investing this component "D" ! It certainly is not something that Insu.Co's give out of their pocket.
In my view, a prudent man will refrain from mixing "insurance" and "investments" as both have different "objectives". While "insurance" is taken to protect the family financially in the event of an untimely death of the bread-winner, "investment of savings" is done to build a corpus which to generate a "passive" income during one's retirement years.
So then, what is the best advice ?
Best Advice is, to take a "Pure Term Assurance" policy (without return of premiums) and "invest" the amount equivalent to the premium difference between a "pure Term Policy" with return of premiums and one without.
E.g. If premium on term policy without return of premiums is Rs 10,000/- and the premium on term policy with return of premiums is Rs 22,000/-, then invest the premium difference of Rs 12,000/- in a "direct" plan of either an index-based mutual fund or a 100% equity mutual fund.
This combination will provide you best of both worlds.
NOTE : The only reason why Insurance Agents do not promote "Term Assurance " plans is because of very low commission (5%)pay-outs compared to what they earn on "endowment" plans (30-40%). Even the annual trailing commissions are lower!
Hope this helps.
hello madam, I want to buy term insurance minimum ₹ 50,00000/- of aegon company, up to 80 years. now I am confused after read your article between term and return, what should I opt. please guide me.
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