The concept of present value of money and opportunity cost are thrown out of window. If annual premium option is chosen, you pay 31240 upfront (against 8048 for quarterly). How about FD on the balance (31240 minus 8048) for 1 quarter, FD of (31240 minus twice 8048) for 1 quarter and another FD of (31240 minus thrice 8048) for 1 quarter? The interest gained thus, should compensate for the difference between annual and quarterly premiums when there are no extra-ordinary forces at play. Otherwise PV concept goes to dust bin. As for RD, it can be done for either case for second year's premium. Nice try.
You should not buy insurance policies for the investment purpose. If you invest your money in the traditional life insurance policies that give your money back after a certain period of time, you end up loosing your money due to inflation and taxes.
If you have a family who depends on your income then you should consider term insurance, in this insurance you invest very little amount of money each year to be insured.In the term insurance, they don’t give you any money back if nothing happens to you but you are insured and if unfortunately something happens to you, your family will receive the same amount of money that they will get from traditional life insurance.
It is like car insurance where you don’t get any money back unless an accident occurs. The good thing is that you could invest the difference (that you would have paid in the traditional policy) in low-cost index funds that can give you return of about 10% in the long-term.
Re: Life Insurance
by anand pathak on Jan 18, 2012 02:41 AM
Well said.The agents dont promote it as they get little commission. Are the policies for a new born child worth it? Or should that money be saved in other instruments? Comments please.
Instead this rediff and insurance companies should come out with articles as to differences between term, endowment and ulip policies.
They should tell people that the term policy is plain and vanila insurance with no maturity that is to say the premium is only towards covering mortality charges but endowment and ulip premiums do include the mortality chages as well as the money which these insurance companies will invest and return back to the policy holder on maturity.
The bottom line is to mop up more and more money from common man, they are mis selling and leading to people being under insured.
What is the value proposition of such articles? A middle class person will never have amount to be put in RD and also pay premium? It is a good article for people who are already in higher middle class category. It would be good if the writer articulated the importance of term insurance Vs ULIP policies so that normal person is not underinsured and pays higher premium
Re: Value Proposition
by Raghavendra Rangrej on Jan 17, 2012 11:31 AM
Very Good article. Author tried to say, select premium which you are capable of and opt to pay annually and accumulate the money monthy in RD which can get more interest rate compared to savings bank... Two times saving of difference in premium amount RD intrest which is more compared savings interest rate..
Re: Re: Re: Value Proposition
by kasina Rao on Jan 17, 2012 02:19 PM
If you pay yearly RD by paying EMI from slary early planned can be ok for middle class investor....
Re: Re: Re: Value Proposition
by kasina Rao on Jan 17, 2012 02:19 PM
If you pay yearly RD by paying EMI from slary early planned can be ok for middle class investor....
Re: Re: Re: Value Proposition
by vikash sethi on Jan 18, 2012 10:44 AM
IT will be deducted only if the total interest received during the year exceeds Rs.10000,which I think is not possible for people at large as the TDS will be attracted only in a RD of more than Rs.20000 per month.
Re: Value Proposition
by vikash sethi on Jan 18, 2012 10:41 AM
Dear Friend as far as I read this article, I think you are misunderstanding it.The option is not to pay RD and premium both. Writer has suggested to divert the premium to RD first and then pay it annually on its maturity.There is no question of class or income as this is helpful for all whoever has taken life ins.policy.
