Is Endowment Plan with guaranteed return good for you?

Endowment Plan with Guaranteed return…!!!!

I have discussed in my earlier blogs about endowment policies. In fact these types of policies failed both purpose insurance coverage and return. Neither it provides proper insurance coverage nor gives the good return. I get query about almost on daily basis regarding guaranteed saving insurance plan. We Indian investor always like “guaranteed “ word and often trap with this word. We pay a very high price for this word.

One of my blog reader has asked recently whether he should purchase ICICI prudential guaranteed saving insurance plan. In my opinion, never invest in those product which provide insurance and investment opportunity both. The selling pitch of these products often so attractive that investor do not resist themselves from such type of product.

The realty of these products that it do not give the proper coverage and it also not give the good return. This particular product gives only 5% return on your paid annual premium and provide only 20-25 times insurance cover of your annual premium. If you go with term insurance you can get up to 700 times insurance cover of your annual premium.

For return point of view if you have conservative risk approach and invest in other debt product like debt mutual fund, PPF, bank FD and others the you will get easily return between 8% to 10% return. If you want to lock your money for more than 10 year then equity investment can give you average 15% return. Many mutual fund schemes like ICICI prudential dynamic fund, Birla SL 95 ELSS has given more than 20% return also.

In endowment product 5% return is not good return according to me after 15-20 year investment. In endowment scheme who guarantee the fix return have many types of expenses and hefty agent commission like 15% to 20%. It badly affects your return on investment. Endowment guarantee plans are only beneficial to agents who are selling this product through emotional sales pitch.

I would like to advise all of my reader that they should avoid such type of products and invest in those avenues which are capable to beat the inflation and provide good return also. Liquidity is also the crucial factor at the time investment.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Term Plan Vs Endowment Plan

Term Insurance Vs Endowment Plan

We often come across these two terminologies when we talk about insurance and investment. As my earlier articles and blogs here I would like to mention here again that never mix your insurance need and investment need. These both shod taken separate after analyze the need. If you have no time to analyze or do not have knowledge then in that case you should contact qualified financial planner.

In term insurance and endowment insurance which one is good? Before going to get answer let us first understand these product properly.

Term Insurance:

It is pure insurance and the premium for insurance cover is very low. It means you will get higher insurance cover by paying less premium. A 30 year old healthy person will pay Rs 8,000 for Rs 50 lakh insurance cover. In case of any unfortunate event during policy term, insured’s family will get full sum insured. If nothing happen then insured will not get anything at the end of the term.

Endowment Policy:

In endowment policy, in case of any unfortunate event happen during the policy term, the insured’s family will get sum assured and if insured survive the whole policy term then at the end of the policy term insured will get sum assured along with declared bonus. Keep in mind bonus is not guaranteed. A 30 year old person will pay around Rs 50,000 premium for Rs 50 lakh cover.

Which one you should choose?

Many of us think that if there should be some payout at the end of the term if insured person survive the term. If you get trap with this thought then you will pay high premium for the same insurance cover and will get lower return around 5%.

In my point of view, you should choose term cover. You will get high coverage with lowest premium compare with other insurance. You can invest rest of the premium after paying term cover premium amount in the other available investment option.

Even PPF and bank fix deposit will give you higher return than endowment policy. It is worst option available for investor with low return. Only agent will get benefit of the hefty commission from the endowment policy and at the end of the term investor loose the better opportunity and get poor return.

In general, you pay the insurance premium around 20 year and get the return 5%-6% after 20 year paying premium. If you invest the same amount for same period in good equity mutual fund then you may get the return of around 14%. Now it is on you which one you will prefer.  

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Insurance Planning – Part 2

Insurance Planning – Part 2

In last article we had discussed why insurance is important for everyone and how to determine the right amount of sum insured. Today we are discussing about the type of life insurance product available in the market. Every insurance plan has some positive and negative aspects so before going with any insurance plan we should understand plan in very well.

Term Insurance Plan:

It is the basic form of insurance that pays a lump sum amount on the only unfortunate event of death of the insured person. If you survive the whole policy term it pays nothing. Due to the no return from this policy on survival of insured person, people often do not show interest to purchase this policy. In reality, it is very good plan for any earning individual. The premium of this policy is very low compare with other insurance plan. People can get adequate cover with very low paying premium. A 30 year old person can get Rs 50 lakh insurance cover to pay around Rs 7,000 in a year. The amount of premium would be constant during the whole policy term. The adequate money receivable under this plan helps you family members to meet their expenses and future need. Your life is precious so always take an appropriate insurance cover according to your life style.

Endowment Plan:

These plans are also known as traditional plan. It provides you insurance cover during whole term and if you survive whole term it returns a lump sum amount at the time of maturity. It attracts most of the people as it provides insurance cover and returns both. Although, the return of these policies are very low in the range of 4-6 percent which do not beat even inflation but still people go with this plan. The premium of these endowment plans is much higher than term insurance plan. If you satisfied with low return with safety then these plans for you.

Money-back plan / Child Plan:

It is another form of endowment plan and provides some part of sum assured at fix interval. The all other features are same as endowment plan. The premium are very high on these plans and rate of return same as traditional plan. These plans are made to fulfill your intermediate goals which are far like 5 year, 0 year etc.

The above mentioned plans are related with life insurance. We will discuss about non life insurance products in the next article.

If you want more information regarding investment and insurance or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Is Insurance plan is the best for tax saving and investment ..?

Insurance Policy is the best tax saving or investment option…?

In these days, we are discussing more about tax saving as the financial year 2013-14 approaching towards end. The whole insurance agents are doing hard work to push their life insurance products and want to increase their income on the expense of investor’s premium.

 I agree that the life insurance is the vital part of any financial planning for face any unwanted events in the life. There are many pure or term insurance plans available in the market which need very less premium compare with other famous insurance plan. The investor also purchase these costly policies in the hurry on the name of tax saving and investment. The two type of policies are very famous among the investors and agents. One is endowment plan and other is money back plan. We will analyze here these type of plans today.

Endowment Plan:  It is life insurance plan which deduct one part of the premium which you pay for insurance cover and the other part invest in different available financial products according to the particular policy plan. Investor get the amount at the time of maturity and pay the premium either till maturity or according to the mentioned year on policy.

Money Back Plan:   This plan is very popular among the investors. In this plan, policy holders get some part of money like 20% to 25% of the sum assured as survival benefit in regular interval. This regular interval varies according to the plan 3 year, 5 year etc. The premium of these plans high compare with endowment plan. Except receiving money in regular interval all other features same as endowment plan.

Let us take one example for better understanding. A 30 year old person decide for insurance plan, risk cover 20 year and sum assured 10 lakh. The approximate premium for endowment plan would be      Rs 48,000 and on the approximate maturity amount would be 19 lakh. The premium for money back plan would be approximate Rs 64,000 and he will receive Rs 2 lakh in every 5 years.  The maturity value would be approximate Rs 12.3 lakh. Investor feel very happy when would receive amount 2 lakh in every year but ignore the high premium.

For above mentioned example, the term insurance premium would be approx Rs 3000 annual which is much lower compare with other plan’s premium.

If we calculate the internal rate of return of the above mentioned plan, the return of endowment plan would be 6% and 5 % for money back plan. You can easily understand the difference now. Would you still like to go with such types of plans which provide you with 5% - 6% during 20 year investment? In fact the return do not beat to inflation even which is at present in 8% to 9% range. We are not showing entire calculation here due to space and it would be too lengthy for 20 year calculation. If you want to see the entire calculation we can provide you.

Many people consider LIC product due to safety. If safety is your most priority there is one product which is more safer called PPF which also give return 8-9% and lock in period 15 years. It also qualify for tax saving under section 80C as equal insurance premium. For insurance cover you can consider term insurance plan which have more cheaper premium.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Dear Investors

I have got very interesting information through mail and I am forwarding the same as I got.

Insurance has been the most ab(used) word, thanks to the mis-selling done by most of the agents / Bank RMs. When earlier ULIPs was offering 40-50% commission, they were busy pushing ULIPs and now when ULIPs are a lot more better thanks to the cleaning work done by the regulator, the insurance companies and agents have shunned ULIPs and moved to selling endowment plans (plans which combines insurance and savings) as can be seen in the below chart which currently offers anywhere between 20-40% first year commission.



We would like to offer following suggestions so that you are not trapped in the game plan of the insurance mis-sellers.

1. The only insurance you should buy is a Term Plan. All other products like Endowment plans, ULIPs, Pension plans, Highest NAV plans are very expensive policies.
2. Never take insurance policies for investment purpose. The returns from endowment policies has been very dismal ranging from 5-7%. Mutual Funds or other avenues are much better vehicles for investments as they are very cost friendly.
3. Whenever an insurance agent or a Bank RM is pushing for a particular policy, ask him if he himself has purchased the same policy. You will know the truth and he will never trouble you next time.
4. Don't trust your agent blindly.
5. Don't take the advertisements at the face value. Most of the time they are mis-leading.
6. Read the fine print carefully ( “Nothing in fine print is ever good news.” ~ Andy Rooney)
7. Incase if you have been sold wrong policies in the last 1-5 years, its better to cut your losses and exit the policy rather then nursing the pain for another 15-20 years.

Pls read the below story on How Insurance Mis-sellers are fooling gullible investors carried out in ET Wealth (23rd July edition)

Warm Regards
Arvind Trivedi
Certified Financial Planner
arvind.trivedi79@gmail.com