Is Life Insurance Really an Investment? Let’s Clear the Air
Ever found yourself wondering if life insurance can double as a good investment? It’s a common belief, especially in India, but let’s take a closer look at whether this myth holds water.
The Persistent Myth
For years, many of us have been told that life insurance can be both a safety net and a smart investment. The classic pitch often goes something like this: “Secure your future with guaranteed returns.” But is this the full picture?
Sharmaji’s Scenario
Let’s take the example of Sharmaji, a typical Indian who invested in a moneyback policy. Here’s how it worked for him:
By the end of the 25-year term, Sharmaji received a total of ?11.25 lakh. On the surface, it looks like a decent return, roughly 7% on his original investment. But let’s dig a little deeper.
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What If There Was a Better Way?
Instead of the moneyback policy, Sharmaji could have opted for a ?1 crore term insurance policy costing ?10,000/year and invested ?40,000/year in a SIP with a 13% return. Here’s the comparison:
After 25 years, the SIP would still have around ?23 lakh left, even after regular withdrawals. This approach not only provides a substantial corpus but also offers better financial growth.
Key Takeaway
The crux of the matter is simple: life insurance is meant for protection, not investment. By choosing a term plan and investing separately, Sharmaji could have secured his family’s future while achieving much higher returns.
Final Thoughts
Understanding the difference between insurance and investment is crucial. While life insurance is essential for protection, it’s not designed to serve as a robust investment strategy. Separating these two elements can lead to a more effective financial plan.
If you’re uncertain about the best way to balance protection and investment, consulting a financial advisor can provide clarity and help you make informed decisions for a secure financial future.