If your car insurance premium is Rs 10,000, will you agree to pay Rs 45,000 if the insurance company returned all the premiums after 10 years? Ridiculous as it may seem, this is the logic driving term insurance plans that return the premium to the buyer. The price of a plan that returns the premium is more than double the price of a regular term plan. The company invests the difference and gives it back to the buyer after the policy ends.
The return of premium plans is just one of the several additions the
insurance industry has added to the simple term plan. Instead of plain
protection against death, term plans now offer cover against disability
and diseases.
RETURNS OF THE TWO PLANS
The math behind return of premium plans show how buyers get deceived
Age : 30 yeras
Term : 30 years
Cover :1 Crore
premium of *regular term plan (Plain Insurance)* : Rs 8,500/-
premium of *return of Premium Plan (Money Back or Endowment Plan)* : Rs 22,500/-
Buyers get back after 30 years : *Rs 6.75 lakhs*
If the difference of Rs 14,000/- (Rs 22,500-Rs 8,500)between the *regular term plan and return of premium policy* is invested every year, in 30 years it will grow to :
At 4% in saving bank account : *Rs 8.25 lakhs*
At 6% in liquid funds : *Rs 12 lakhs*
At 7.9% in PPF : *Rs 17.5 lakhs*
At 10 % in balanced funds : *Rs 27 lakhs*
At 12% in equity funds : *Rs 40 lakhs*
It is absolutely clear from the above example that the buyer would have gained more even if the difference in the two plans idled in a saving bank account. But if the same was even invested in PPF, the buyer would have gained 11 lakhs more. But the best is Investment in Equity Mutual Fund. So, it is foolish to take a money back insurance plan. Instead, take a Term Plan and that too only for the head of the family because if God forbids, something happens to him, the family must be secured financially. There is nothing more absurd than taking insurance plans for children. You don’t require any financial security if anything happens to them. So, please never take any insurance plans for small children. Insured them with simple term plan, when they cross 20, because you will have to pay less premium.
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RETURNS OF THE TWO PLANS
The math behind return of premium plans show how buyers get deceived
Age : 30 yeras
Term : 30 years
Cover :1 Crore
premium of *regular term plan (Plain Insurance)* : Rs 8,500/-
premium of *return of Premium Plan (Money Back or Endowment Plan)* : Rs 22,500/-
Buyers get back after 30 years : *Rs 6.75 lakhs*
If the difference of Rs 14,000/- (Rs 22,500-Rs 8,500)between the *regular term plan and return of premium policy* is invested every year, in 30 years it will grow to :
At 4% in saving bank account : *Rs 8.25 lakhs*
At 6% in liquid funds : *Rs 12 lakhs*
At 7.9% in PPF : *Rs 17.5 lakhs*
At 10 % in balanced funds : *Rs 27 lakhs*
At 12% in equity funds : *Rs 40 lakhs*
It is absolutely clear from the above example that the buyer would have gained more even if the difference in the two plans idled in a saving bank account. But if the same was even invested in PPF, the buyer would have gained 11 lakhs more. But the best is Investment in Equity Mutual Fund. So, it is foolish to take a money back insurance plan. Instead, take a Term Plan and that too only for the head of the family because if God forbids, something happens to him, the family must be secured financially. There is nothing more absurd than taking insurance plans for children. You don’t require any financial security if anything happens to them. So, please never take any insurance plans for small children. Insured them with simple term plan, when they cross 20, because you will have to pay less premium.
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