Agents are still misleading consumers by suggesting insurance products are good investments. These definitely are not. Get your life covered but don't hand over your savings.
Say you can save Rs 5000 a month and you want to do the best you can to protect yourself and grow your savings.
And, your friendly neighbourhood insurance agent suggests that the best course for you is to put all the money into an endowment plan because it will help you save in a disciplined manner and give a significant sum of up to Rs 12-13 lakh (sum assured or life cover for the product is Rs 10 lakh) 15 years later.
The emotional pitch: When your son is going for his higher education, you will have substantial savings to meet his demands.
Add to that, there is no risk to your capital and the plan will help you save taxes.
Many fall for this and very easily. But should you?
The answer is NO.
The agent is trying to confuse you by combining insurance and investment, and if you take his advice, you will end up with far lower returns than you can get elsewhere. Let us see why.
If you took a term insurance policy which has no investment component, assuming you are a 35-year-old, for a life cover of Rs 10 lakh, you will need to pay only Rs 250 a month, not Rs 5,000 a month!
Of course, in a term insurance policy you get back the sum assured only if you die during the period of the policy.
But that shouldn't bother you, because you are paying only Rs 250 a month now, so you still have Rs 4750 every month that you can invest elsewhere (more of that in the next slide) for far better returns.
Image: Cricketing icon Sachin Tendulkar seen during this promotional event for the Aviva insurance group in Mumbai in this 2008 file photo.
Text: Neha Pandey Deoras, Business Standard