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Are you looking for returns from your LIFE INSURANCE POLICY? Then Please Read This….

Everyone has their own purpose behind deploying their money while saving or investing. The main purpose is ‘Returns’! Everyone seeks good returns from their money. For many people, this goes with their life Insurance policy as well!

But is it right to seek returns from your own life insurance?

Well, ‘Insurance’ is the assurance about financial independence of your dependants after your death, because the sum assured of your policy goes to them and supports them financially in the period of grief.

Whereas,’Investment’ is making your money work for you by deploying it in different instruments as per their suitability to your goals and risk appetite. So, these two are totally different things, which many people mix by buying a life insurance policy which gives the benefit of insurance and investment..but, seeking returns from your insurance policy is not right!

Lets see how…

  1. Effects of mix of insurance and investments: Since, Insurance is the assurance about financial independence of your dependants, you need to make sure the sum assured is enough for them to lead independent life and they can fulfil their goals. When you invest in such policy, the sum assured is not enough. Just imagine, with the sum assured in such policy, will your dependants be able to survive independently if you die? I am sure, many of you will get the answer as ‘NO”. Then, whats the use if you get the returns from such policy if you survive the policy term if the purpose behind getting the policy was ‘ to insure’?
  2. Potential returns from such policy: If you think, you will get good returns from such policy, then please take a pause. If such policy is market linked i.e. the investment part of the policy is market linked, then you are taking a risk on your money which is suppose to ‘assure’ you about well being of your dependants after you. Returns from such policies vary depending on the market performance. If the policy is not market linked but comes with some guaranteed bonus and returns, then the returns typically vary in the range of 6%-8%.Looking at this, you must think , how come such returns will make you wealthy?
  3. High amount of premium and comparatively less amount of sum assured: When you take a mix of investment and insurance, such policies charge high amount of premium. The problem comes, when after paying such huge amount per year, you get less sum assured in comparison.
  4. High amount of charges: Many policies, specially market linked policies carry various charges to manage the fund and your insurance. They are disclosed in the policy details. But, people go behind attractive returns calculations, and often forget to look at the charges. These charges eat away your returns because the portion of your premium goes towards them , thereby reducing actual amount of your investment portion in the policy.
  5. Lock-in period of the policy: Many policies come with lock-in period and you need to pay the premium till the end of it.
  6. Complexity of the product features: Such policies come with many features that people in general don’t really understand.

So, looking at the above, please rethink about your decision to buy any such policy.

Now you will say, if one should not buy such policy then which life insurance policy one should opt for? The answer is“TERM INSURANCE”.

Term Insurance policy is a life insurance policy only but it serves the core purpose of life insurance. Because-

  1. Here, dependants of the insured get the sum assured upon the death of the insured, but the insured doesn’t get any benefit if he/she survives the policy term. This fulfils the purpose of the life insurance.
  2. Term insurance comes for a certain term that you can choose. One should choose the term till the age of his/her retirement as till that time of age your major responsibilities like children education, marriage, home purchase etc get over.
  3. This type of policy gives you higher amount of sum assured in comparatively less amount of premium. One can choose the premium payment frequency as per convenience.
  4. It is simple to understand and easy to operate. Any person in general can very well understand the features.
  5. One can buy the policy from the insurer’s website though online mode as well.

So, this is how you can protect you dependants financially even if you are not there. Though, the emotional loss can never be recovered, but their economic conditions can be secured to a large extent and they can lead independent life!!

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