Recently LIC launched a plan and I wrote my review on the same. When we say stay away from traditional LIC plans and buy term insurance. Then definitely, a section of people strongly advocates about such plans. Therefore, I tried to summarize it in below points for your benefits to buy Life Insurance š
1) It is best tax saving tool
The first point that motivates either to sell or invest in such traditional plans will be tax saving. They haveĀ PPF, EPF or Bank FDs but they don’t satisfy with kind ofĀ DIVERSIFICATION. Still in need a better diversification, they invest in such products. Neither investor knows nor the agent who is selling it to him about the future faith of the buyer. Sec. 80C limit raisedĀ from Rs.1,00,000 to Rs.1,50,000. So we must fill that Rs.50, 000 gap at any cost. Otherwise, we pay taxes, which is, waste š
Along Ā with that, the one more tax hint they add is neither tax on maturity nor TDS. Fully agree, but at what cost?
2) It is a great product which combines investment (gives return) and insurance–
Wow! They pointed it correctly. However, neither insurance need suffice them, nor the return on investment. Both are at unsatisfied point. Reason is, with the kind of premium, one cannot buy the actual required insurance. Hence, they are totally under insured. At the same time, such policies hardly give you the return of more than 7% to 8%.
When we say aboutĀ term insuranceĀ then their first strong reply will be “It will not give return if we survive”. 200% true that it will not give you a penny if you survive, but one die during the policy term, then the value of actual insurance will come into the picture. We follow the mentality of “Badle Mein Kya Milega?ā. Ā If your agent asks this question himself before selling you then it is his business style. At the same time, if you think of insurance with this question then no need to have Vehicle Insurance or Health Insurance right?
3) I am conservative investor, so it suited for me–
I totally agree that we cannot change one’s investment behavior and psychology so easily. If one is conservative then he have two options to reach his financial goals.
- Invest more so that inflation of that particular goal will not touch you.
- Lower your goal amount so that you can invest on how much you are capable of in such low yielding products.
No… They forget both. Only think of conservative mindset and invest. Even God can’t survive them, forget about the agent who sold them these products with much fanfare š
4) I cannot take risks by buying products other than LIC–
Well.. They are already under risk by buying lower insurance and lower yielding product. Therefore, what we can understand is, they do not know the definition of FINANCIAL RISK they are buying. So understanding your financial risk is more important than following the herd.
5) I need to diversify my investment–
Buyers usually say, “I have already invested in PPF, EPF and Bank FDs. So the next best thing to diversify is traditional Life Insurance Products (Sorry I will not quote LIC here :)). Hence, I must have to invest in LIC which is single most great product offering Insurance+Return on Investment+Tax Saving tool.”
But they forget that none of the above said products give them proper diversification as all are within the same asset class but added a number of products.
The above mentioned are the few major reasons why we buy or motives us to buyĀ LIFE INSURANCE. You are free to add n number of points, if you find any new š
Hi Basavaraj,
I found out that buying a LIC Jeevan Anand of Rs.10 Lac sum assured for a period of 30 yrs is not going to beat inflation as well as serve my insurance needs. Going for a term plan would have been a better option. It is never too late to rectify my mistake.
Please suggest how do I come out of this policy.
Below are my details:
Policy: Jeevan Anand
Term: 30 yrs
Current Age: 26
Yearly premium: Rs 31000/-
Already paid 3 premiums
Hi Basavaraj,
Firstly, i like the way you explain people’s queries.
Secondly, I need your suggestion on investment.
As you have said in one of your replies – People need to set goals rather than go behind lucrative (at least it sounds to be) schemes.
My requirement –
I have a kid who is 8 months old, I want to do some investment so that i get yearly returns so that it helps me in the child’s education to a certain extent and i do not get a burden of paying huge school fee at the start of the academic year.
I can use the investment proof for tax benefit.
my other requirement – I want to do some investment so that i get a lumpsum amount at my kid’s 16th birthday. Again it would help me if I can use the investment proof for tax benefit.
Thanks,
Ganesh
Ganesh-In that case you need to plan for each year as a separate goal and based on that invest in a product. Also don’t forget about inflation which effect your goal. What do you mean by “some investment” and how much is that “lump sum”? First have clarity on your goal then go ahead.
hii i am harish from jaipur and working as a IT Engneer and also agent in bajaj aalianz. i want to invest ELLS from my father side to avail tax benefit and its locking period is 3 years that i know
I want to know that which fund we choose for ELLS and the amount is 50000 to 60000 thousand one time investment.
is it good to take 100 % equity portfolio or we have to invest in diversified fund or any else please suggest me
and i want to invest in direct plan with growth option.
so plz suggest me and give fund selection advise.
This is so true….mostly people in India especially LIC customers looks Insurance plans as investments instead of risk containment measure. Only education about these product can bring a change for the good.
Nice post !!!
hi basavaraj, completely agree with your points and I agree that many Indians love insurance as an investment vehicle then other market linked products. i feel two reason for people still making these financial mistake
1. there inability to understand the effect of inflation and getting into capital preservation mode by channelling there hard earned money into junk products like insurance(for investment) rather then mutual fund
2. following the footstep of elders,not realising the changing scenario of investment for growth of capital
3. market linked products like mutual fund has bad name because negative returns highlighted by people(people will happily share the loss they make in MF/stocks to others) but not from insurance.
and that’s why its important for people like us to educate people and work towards consumer awarness
Ankit-Thanks for endorsing my views š
Hello Basavaraj,
Is standard chartered wealth builder plan good..?? Can I go for it?
Niraj-I think product is not for Indians. If available in India too then I am not sure about this product. Provide me link to go through the same.
Sir, you better try to weed the social stigmas out of society… like dowry system, ‘honor’ killing…. then talk about term plans…. ok?
Joydeep-Thanks for your suggestion š There are others to do the things you suggested. So I am doing in this industry š
Hi basavaraj I saw ur old article by name MFLRP which is very informative. Did SEBI introduced these plans under mutual funds. I would like to start SIP for my retirement corpus. If already existing in market pl suggest me good fund. Thank u.
Sudheer-As of now no such schemes rolled out. So we need to wait for few more days š