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Old 23rd September 2010, 09:34   #316
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Money back policy is NOT insurance, its an investment. And a huge ripoff as an investment. Not recommended at any age.

If you plot returns from such policies against:

1. Pure term policy for the same amount +
2. SIP investment with average returns of 10%

It becomes apparent that cost is way too high.
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Old 23rd September 2010, 09:39   #317
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Originally Posted by aargee View Post
Carboy, I was of the same opinion as you, but you see a friend of mine who'd taken a life insurance coverage somewhere during 97 used to pay about 40K per annum for a money back policy of 10L, but just think about the cost now!! Last time I checked for Endowment (same 10L) is somewhere around 66K PA.
In my opinion, it makes no sense to go for a money back policy.
Insurance is not investment. When you buy insurance, expect to get no money back unless you die.

Also, consider someone has taken insurance in 97 even in a money back policy when he did not need that. He has paid 40k per year for 13 years.
Instead, he did not take insurance at that time & instead compouned 40K per year at just 6% (I am assuming a low return of 6% considering he would pay taxes on the interest he earns). He would be having 7.6 Lakhs in cash with him today.
Today, if he requires insurance, he can put the 7.6 lakhs in a FD earning
just 5% after taxes. He will get 38K per year in interest. That will cover the 66K - 40K in yearly premium for the rest of his insurance period & he will still have 12K per year saving.
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Old 23rd September 2010, 10:11   #318
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@Carboy - I can only say what my friend has taken otherwise I would be lying here; he might've calculates few things based on what interested him at that point in time. My point here was not to recommend money back or endowment, but to say that the insurance premiums will become expensive through the years & earlier the better.

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When you buy insurance, expect to get no money back unless you die
Are you saying that one doesn't get (atleast the premium paid) back if he's still alive? I don't think so.

And your logic on FD's interest looks good. But again, there's no substitute for life with even all the money in the world. Depends on how one see the situation.
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Old 23rd September 2010, 10:26   #319
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Originally Posted by aargee View Post
@Carboy - I can only say what my friend has taken otherwise I would be lying here; he might've calculates few things based on what interested him at that point in time. My point here was not to recommend money back or endowment, but to say that the insurance premiums will become expensive through the years & earlier the better.


Are you saying that one doesn't get (atleast the premium paid) back if he's still alive? I don't think so.
There are 2 types of life insurance
- Term Life
- Whole Life

In Term life, the policy is for a term (10 years, 20 years whatever). It's pure insurance. You pay premiums through the term & if you die during the term, the person who benefits get the amount your life has been insured for. If you do not die during the term, you get absolutely no money back.
It's like your car insurance. You insure your car for a year - if you do not have an accident or have your car stolen, do you expect to get your premium back after the end of the year?

In Whole Life, it's insurance + investment, you get money back even if you do not die.

For the same insured amount, Term Life premiums are a very small fraction of whole life insurance.

If you need life insurance, buy Term Life insurance. Do not expect any profit from it. The only way to profit from it is by dying.

Whole life is a sucker's game. The agents have huge commisions on selling it - so they push it very hard. The company pays huge commisions to the agent, because they get huge profits from it.
If you want investment, look for pure investment instruments, do not go for insurance. It makes no sense to mix insurance & investment.

Last edited by carboy : 23rd September 2010 at 10:35.
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Old 23rd September 2010, 10:33   #320
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Quote:
Originally Posted by aargee View Post
Are you saying that one doesn't get (atleast the premium paid) back if he's still alive? I don't think so.
I think what carboy meant that one should not expect investment returns on a *pure risk cover* product like Insurance.

Insurance is meant to cover the risk, the risk of death. This is what a Term insurance plan does. It only covers the risk, if you survive the policy term you will not get *anything* back.

And this is the way it should be, since it is a risk cover. Do we get any returns back on our health insurance premiums, auto insurance, home insurance? No.

But clever insurance/banking companies mix insurance with investment, in form of Endowment plans, money back plans, ULIPS and what nots, just to confuse the buyer to fool him into thinking that a product which covers risk as well as returns premiums is a superior product over the one which does not.

As someone pointed out, even the so called Endowment, money back and ULIPs have a part of their premium invested for the insurance part, and the rest is your blown up into commissions, fees and the minuscule remaining is invested.

A term plan + PPF will give you more returns and cost less than an Endowment/money back plan.

A term plan + equity diversified MF will give you more return and cos less than a ULIP.

Take your pick.
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Old 23rd September 2010, 10:35   #321
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Quote:
Originally Posted by carboy View Post
There are 2 types of life insurance
- Term Life
- Whole Life
This comes as a good advice especially when I'm looking out to buy one; I was actually considering (read it finalized) endowment plan from LIC; I knew about not getting the money, but didn't know it was called as "term" insurance.

What I would be needing is the whole life plan & I'm thinking of LIC's Endowment plus for 15 years. What's your opinion?

Quote:
Originally Posted by carboy View Post
The agents have huge commisions on selling it - so they push it very hard.
Read it 40%!!! If we also play little harder, they'll agree to pay the first premium for us

Quote:
Originally Posted by carboy View Post
If you want investment, look for pure investment instruments, do not go for insurance. It makes no sense to mix insurance & investment.
It makes no sense to mix insurance & investment, but at some point of life, one would need an insurance.

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Originally Posted by DCEite View Post
And this is the way it should be, since it is a risk cover. Do we get any returns back on our health insurance premiums, auto insurance, home insurance? No.
Yep; got the point. Tks.

Quote:
Originally Posted by DCEite View Post
A term plan + PPF will give you more returns and cost less than an Endowment/money back plan.

A term plan + equity diversified MF will give you more return and cos less than a ULIP.
Haven't got it completely; any elaboration will help as I'm looking to take one immediately. Tks.

Last edited by aargee : 23rd September 2010 at 10:38.
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Old 23rd September 2010, 10:48   #322
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Quote:
Originally Posted by carboy View Post
In Whole Life, it's insurance + investment, you get money back even if you do not die.

There is a catch here however, the Sum Assured plus any accrued bonuses can be paid after attaining certain yrs of age upon survival. In case of LIC its 80 yrs. Having said that it you surrender the policy anytime during the term then you would eligible for surrender value benefits but not the Sum assured.

If you need life insurance, buy Term Life insurance. Do not expect any profit from it. The only way to profit from it is by dying.
The profit would of course not yours but your family/dependants.

Whole life is a sucker's game. The agents have huge commisions on selling it - so they push it very hard. The company pays huge commisions to the agent, because they get huge profits from it.

Absolutely. Till now the agents have been making money by selling the Whole life, endowment, money back policies and now they make money by selling the ULIP's. They paint rosy pictures of huge paybacks/earnings and most of the gullible customers fall to their trick.

If you want investment, look for pure investment instruments, do not go for insurance. It makes no sense to mix insurance & investment.
+1 to that. I however learned this the hard way.
Similar to the term life Insurance is the Medical Insurance. Until and unless you make a claim, the premium amount for the year vanishes in the air but atleast assures you that "IF" something had happened there would be cover.

This is the single most reason why most people prefer ULIP's, atleast they get their invested money back if not the profits and the agents are making a fortune.

Last edited by ghodlur : 23rd September 2010 at 10:50.
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Old 23rd September 2010, 10:57   #323
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Originally Posted by aargee View Post
This comes as a good advice especially when I'm looking out to buy one; I was actually considering (read it finalized) endowment plan from LIC; I knew about not getting the money, but didn't know it was called as "term" insurance.

What I would be needing is the whole life plan & I'm thinking of LIC's Endowment plus for 15 years. What's your opinion?
Endowment plans aren't pure insurance. It isn't a term insurance.
So my advice is don't waste money on it.
Instead first figure out if you need life insurance & for what term.
Factors to consider
- If you die in the next 'X' years, is someone going to be seriously affected because they are dependent on your salary.
This may be your parents who are dependent on you & their pension & investment income isn't enough to meet their expenditure & their health issues.
This may be your children who if you die may not be able to afford to complete their education because your monthly salary or savings when savings corpus isn't there to pay their fees, books etc.
This may be your spouse who is fully dependent on your income & your savings if you die tommorow will not be enough to pay her bills.
You may have a home loan for the next 5 years. If you die, your spouse may not be able to pay the monthly EMI from your savings & still have money left over for daily expenditure.

If the above is true, that means your death in the next 'X' years will affect this person seriously. In that case, take a term insurance for 'X' years for 'Y' amount of money. The 'Y' amount of money would be such that, if you die, then the dependent(s) will get the 'Y' amount & would be
able to live off it (by investing it in FDs, Monthly Income Schemes, etc)

For eg. let's say your children are 15 years old & you expect them to be self sufficient by age 25 years. Your current savings or the savings you expect to have next 10 years isn't enough to get them through to age 25 if you die before they are 25. Then calculate what money they would need in addition to whatever savings you have(which they will inherit when if you die) to provide a cushion for them upto age 25. Then buy a term life insurance for this amount for a term of 10 years. If you die in between, your savings which they inherit + the money they get from your policy should be able to get them through comfortably upto age 25 after when they may be self sufficient.

Again, even this may not be needed by everyone. Suppose you have enough savings & investment to take care of your dependents needs (adjusted for inflation) even if you die, you may not need any insurance at all.

Quote:
Originally Posted by aargee View Post
Read it 40%!!! If we also play little harder, they'll agree to pay the first premium for us
It will still be costlier than Term Insurance + Regular Investment.


Quote:
Originally Posted by aargee View Post
It makes no sense to mix insurance & investment, but at some point of life, one would need an insurance.
I don't understand your point here?


Quote:
Originally Posted by aargee View Post
Haven't got it completely; any elaboration will help as I'm looking to take one immediately. Tks.
Say you get Term insurance for 'X' Lakhs cover by paying 10K per year.
And you can get a Money Back, Endowment, Whole Life, ULIP for 'X' Lakhs by paying 40K per year.

Then take Term Insurance instead of the other policies. Put the remaining 30 K per year into some other pure investment(FD, PPF, MF whatever). Investing 30K per into this invesment vehicle would at a minimum give you more at the end of your term (if you die or don't die) than what you would get from your money back, endowment, ULIP, whole life policy.

As an example, 30K per year compounded annually for 20 years at 8% would give you 13 lakhs at the end of 20 years.
So don't expect money back from insurance. Instead invest the difference in premiums between term & money back policies
to get money back.

Last edited by carboy : 23rd September 2010 at 11:07.
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Old 23rd September 2010, 11:18   #324
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@Carboy - your post makes perfect sense. I think I'll change my plans on insurance from Endowment.

I just did a calculation on term insurance from LIC (Amulya Jeevan) & the premium works out to be just a Lakh for 25 years & I'm covered for 25 Lakhs. Which is way too good to hear, but on contrary, I lost 1 Lakh which is just Rs 4000 for next 25 years!!!

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Old 23rd September 2010, 11:55   #325
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Originally Posted by aargee View Post
@Carboy - your post makes perfect sense. I think I'll change my plans on insurance from Endowment.
Once you do this, make sure you invest the money you are saving on the premium wisely :-)
i.e. if you saving X amount in the lower premium for term insurance, then figure out what's the best investment vehicle for you - PPF, FD, MF whatever & put the savings there. If instead, you take the savings & blow it on something else, then the advice you got here about term life would have been bad for you.
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Old 23rd September 2010, 12:31   #326
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Once you do this, make sure you invest the money you are saving on the premium wisely :-)
Point taken;
I prefer making a one time lumpsum payment of 1.1 Lakh, though this might take sometime as more than the money, I need to mentally prepare myself on wasting & might also convince family members. What do you suggest on onetime vs annual? I hope its ok to make a lump sump right?

Does any other insurer provide lesser than this premium amount?

I feel term insurance is the ONE to opt rather than mixing insurance & looking insurance as an investment.
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Old 23rd September 2010, 12:51   #327
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Point taken;
Does any other insurer provide lesser than this premium amount?

I feel term insurance is the ONE to opt rather than mixing insurance & looking insurance as an investment.
You can check with Religare Aegon. Their premium is the lowest IMO.

You can try the various term insurance comparators available on the internet and decide.
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Old 23rd September 2010, 13:44   #328
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You can check with Religare Aegon. Their premium is the lowest IMO.

You can try the various term insurance comparators available on the internet and decide.
I believe the latest iProtect Term insurance from ICICI Prudential has the lowest rates. Pls note that I havent bought the same but noticed it when I was checking rates for Term Insurance.
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Old 23rd September 2010, 22:03   #329
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Quote:
Originally Posted by aargee View Post
Point taken;
I prefer making a one time lumpsum payment of 1.1 Lakh, though this might take sometime as more than the money, I need to mentally prepare myself on wasting & might also convince family members. What do you suggest on onetime vs annual? I hope its ok to make a lump sump right?
Interesting, why do you call it wasting?

Also what benefit are you getting in making a lumpsum payment? Have you factored in the loss of interest on this1.1 lakh (or 96-97k after first premium)?
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Old 24th September 2010, 08:22   #330
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Interesting, why do you call it wasting?

Also what benefit are you getting in making a lumpsum payment? Have you factored in the loss of interest on this1.1 lakh (or 96-97k after first premium)?
+1 to that. It cannot be termed as wasting but as a calculated risk cost.

Even I was to suggest you to go in for the either yearly of half yearly premiums rather than go for a lumpsum payment. You can earn interest on the amount when kept in FD and premium paid on yearly basis which I believe would be 9K from your post. In other words on principal amt of 1.1L you can pay premium for 12 years min and on the interest maybe an additional couple of years. So if you take a policy for 15 years then I think this lumpsum amt would be sufficient for premium paying. Also in case of any emergency the amount can be utilised and later replenished.
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