Investment School: What is Term Insurance?

What is Term Insurance?

If you go to a set of life insured people and ask them as to what policy has they acquired, most of them atleast in my friends circle don know even the name of policy, which shows their height of ignorance. The rest will give the very famous answer of "Jeevan Anand" or some other endowment or moneyback policy name.
The concept of Life Insurance is totally misintrepreted in our nation, it is seen as an investment avenue. The main mantra behind life insurance is RISK COVER, which most of us don even cares about here. INSURANCE SHOULD KEPT SEPERATE FROM INVESTMENTS. There are adequate alternate choices for better investments.
If you take a survey among the LIC policy holders, for sure not more than 5% of them would have even heard about TERM INSURANCE. This is the policy from LIC which is a PURE RISK COVER policy in nature. There are only such TWO policies offered by LIC (which shows that even the organisation is willing to sell this policy). The name of the policies are

1.Anmol Jeevan
2. Amulya Jeevan

How different are these plans from the endowment plans?

1. Cheap Premiums for very high sum assured amount. For eg., for a 50,00,000 cover for a indiviual of age 21 for the period of 35 years, the premiuim is as low as Rs.13,350. Whereas in jeevan anand which is a endowment policy, for a sum cover of 5,00,000 itslef, the annual premium is 12660. This clearly explains high cost involved in endowment policies.

2. Theres no payment of sum assured on maturity of the policy. THIS IS THE WAY A LIC POLICY SHOULD OPERATE. You may ask in endowment policies, we get back sum assured plus assured bonus, so whyd shud i waste my premium if i cant get anything back. I will
explain that question pretty elaborately with a good example.

Lets assume a 25 lakh policy for an indiviual of age 21 for a period of 10 years.

Case 1: Amulya jeevan (Term Insurance)

Annual Premium : 5300

Case 2 : Jeevan Anand(Endowment plan)

Annual Premium : 2,82,170

Final amount : Rs 37 lakh.

So Now get the difference between the two premiums.

2,82,170 -5300=2,76,870

Assuming you take a term plan and start a SIP of 23,000(which 2,76,870/12) in reliance vision fund, for 10 years. From the last 10 year track record,

Final Amount : 2,30,30,594 ( 2.3 crores).

2.3 crores Vs 37 lakh speaks for itself. If you are smart enuf of not wasting money in paying hefty premiums, you can become a crorepathi instead.

BUT DON EVER EXPECT A LIC AGENT TO TELL U ABT TERM INSURANCE. You have to get it done from him, coz agents do not get much commission from these policies.

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Pankaj said...

better still buy a personal acident cover rates are upto 5 times lower.
As an eg 10 lac term costs around 2500 for 27 yrd old while personal accident will cost just around 500.
bt then usual gripe is what we get now and not 20 years later or on death thats the sad part of it.

Chinnadurai said...

Wonderful article.

Thank you for explaining Term Insurance policy.

vinod said...

Educating on term insurance is key for insurance. Well said that insurance and investments needs to be seen from mutually exclusive perspective.

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