Most people thinks that traditional life insurance policies (like endowment, money back, ulip etc.) are the good one, which gives maturity benefit or survival benefit as well as risk coverage. Of course they are right, that they will get maturity benefit. But they are not thinking about that the insurance coverage, which protects their family from financial crisis, when anything unexpected happens? Will they continue their lifestyle as if the breadwinner of family is alive and earning?
As per Personal Finance experts every person should have sufficient insurance. Less Insurance means no insurance. Insurance amount should be atleast ten times of annual income of earner. If any loans exist insurance should cover the loan amount also.
So, think how much one should pay premium for traditional insurance policies for adequate life coverage? As per experts suggestions person who is earning 2.5Lakh per annum should have atleast 25 Lakhs of insurance. It will cost around Rs.80,000 to 1.5 Lakh per annum for 25 to 35 years persons for 25 Lakhs of Insurance coverage for normal insurance policies. Is it practically possible for normal middle class persons who is earning Rs.20,000 per month will able to pay around Rs.6,000 to Rs.12,000 for insurance itself?
Do you know In term insurance how much premium need to be paid? Just around Rs.3,000 to Rs.10,000 per annum. OK now some one may ask that, how much we get as a maturity benefit if we survive. Ofcourse you get Nothing as a survival benefit or maturity benefit. But you have your valuable life with you which is priceless.
Majority people feels that their Children education, Marriage etc are their primary responsibilities of their life. What if something unexpected happens? No one can give guarantee on life. Let us understand that Insurance financially protects one’s family in his demise. It is not an investment or savings tool.
Now, let us discuss on maturity benefits. Do you know how much insurance companies are paying to you as a maturity benefit? Simply 4% to 6%, that too for such a long period of 20 to 30 years. Except Money back policy (ofcourse, for this you have to pay more premium), for all endowment policies no liquidity is available, we can’t touch our amount until 30 years (maturity). Ofcourse loans facility may be available. For this you have to pay 9.6% of interest.
There are many ways available which pays more than 8% of interest for you. For example PPF gives you 8.8% yearly cumulative interest without any risk. So, analyse once before going for an insurance on how much your getting insurance coverage and how much you can have liquidity, decent rate of increase for your investments.