Why we do not recommend Conventional Insurance Policies ?

Here is a comparison…..
(Term + PPF) or (Term + MF) as against a conventional endowment assurance

Case :
Male
Age : 30 Years
Sum Assured : 5 lakhs
Term : 30 year period
Mode : Annual Payment
Cost of Endowment Assurance is Rs. 14,985/-
As per the IRDA approved illustration optimistic sum assured including bonuses is Rs.13,75,250/-

This may seem attractive to the Insurance Company.

On the contrary, if the same person applies for a pure term assurance for a sum of 5 lakhs, premium that has to be paid for 30 year term is Rs.2009/- including service tax. The balance of Rs.12,976/- could be invested in a diversified equity fund under SIP mode. At an expected pessimistic return of 12% p.a. value of the fund at the end of 30 years would be Rs.31,31,533/-. The Investor gains by a whopping 17.56 lakhs. This is a huge sum which goes waste by opting for a with profits plan of an Insurance Company. If the person is not willing to take risk by investing in a mutual fund, he can look at the next option.

Buy a pure term insurance by paying Rs.2009/-. Invest the balance of Rs.12,976/- in a PPF account. He would accumulate Rs.15,87,560/- at the end of 30 years at the prevailing rate of return. This again gives him an additional amount 2.12 lakhs.

In addition, he can also decide to discontinue the term policy before 30 years, once he realises that there is no financial dependency on him.

Ultimately, it looks as simple as this. Buy Term and Invest or (Save) the rest. By looking at these options,
1) a person can avoid getting underinsured
2) Beat inflation comfortably
3) Gain huge sum, as a difference