“Insurance is not good
option for investment”
The headline of this article is very
clear and I have mentioned it many times in my past blogs. Now you will
question that why I am writing this simple line so many times that insurance is
not good option for investment. In spite of writing many times on this subject,
I still get the call from investors and friends and they all ask the same
question which insurance policy is good for investment.
Increasing competition within insurance companies
leads the high advertising and marketing budget. The no. of people is
increasing to invest in insurance product inspired by glitzy aid and marketing.
The people have been bombarded by the tricky insurance and return pitches at a
rate that is much higher than earlier time. Internet, social networking sites
are the main weapon to attract the young generation to invest in insurance. The
whole focus of most insurance advertisement is on return not on the risk cover.
In today’s uncertain world, to insure
yourself is most important thing and it should be done on priority basis. First,
find out the right amount of insurance which will fulfill the need of your
family in case anything wrong happen with you and go for any term insurance
cover. A 35 year old person can get Rs 25 lakh insurance cover by paying only mere
approx. Rs 4500 per year.
Actually, there is something deeply wrong
in marketing and advised by insurance agent. The agent never suggest about the
term insurance to the client as they get less commission on it as premium
amount is less in case of client go with term insurance. In fact, term
insurance is the best option for risk cover for client. The problem become more
deep in that case when you ask about term insurance and they respond that you
will get nothing back in term insurance and it has no benefit. After listening
this statement from the agent that the term insurance has no benefit, you ask
for other product with benefit and from here the miss-selling start.
The agent suggest you product which has
more benefit for agent and insurance companies and poor people get trapped in
the sweet talk of agent. The reasons why I am saying that insurance product is
not good for investment purpose are it is illiquid investment. It means that
whenever you need money you should get your money in your hand bit in this case
insurance come with 10-20 years plan and your money get stuck for so long
times.
Insurance products have lack of
transparency in investment compare with mutual fund products. It has also more
cost and agent commission when you compare it with mutual fund agents. In
general, the agent get commission 15% of the annual premium in the first year
and after that the commission get reduce
from 7.5% to 5% per year of the annual premium. Anyone can understand easily,
in any investment product if an agent gets such huge commissions so how can
such product will deliver the good return for investors. In fact, in 10-20 years
poor investor get return on investment below than the bank fix deposit return in
majority cases from invest in insurance product. I will again say please do not
mix your investment with insurance products.
If you have doubt about investment
product and want more information regarding investment or you need investment
services, feel free to ask us. We also conduct the seminar on investment and
financial planning. If you are interested for seminar in your city just drop
the mail.
Warm regards,
Arvind Trivedi
Certified Financial Planner
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