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Term Insurance : Is it just a waste of your money?

Last updated: August 6, 2015 | by

In most of my financial counseling sessions the hot topic has always been, “Is term insurance the best form of insurance?” Or is it a waste of money?

Many investors have a perception that buying a Term insurance plan is a waste of money. They argue that the investor (insured person) will not receive any monies on maturity of the insurance plan. They say that they do not get any investment returns on purchasing a Term insurance plan.

So, what type of insurance plans do these investors generally end up buying? Answer is.. they may end up buying Endowment or Money-back policies. Their point is that these types of plans provide ‘something in return’ on their investment.

Is there any way to prove that Term insurance is more cost effective than traditional policies (like endowment or money-back)? Can we prove this by considering an example?

The combination of Term insurance and other investment options can generate better investment returns. Let us understand this with an example and prove that Term insurance plan is indeed the best form of insurance to buy.

Term Insurance plan Vs Endowment Policy – Example

Is Term insurance really cost effective? Let us analyze this with an example.

Mr Tendulkar and Mr Gavaskar are good friends. Both of them work in the same company, have similar lifestyle and expect to maintain the same standard of living in future too. They want to invest around Rs 1.20 Lakh per annum.

Mr Tendulkar decided to buy an Online Term Insurance plan. He opted for Rs 25 Lakh as Sum Assured. The annual premium payment on this term plan is Rs 5,000. He has left with Rs 1,15,000.

His friend, Mr Gavaskar believes that buying a Term insurance plan is a waste of money. He bought an Endowment Insurance Plan from a leading Life Insurance company. He too opted for Rs 25 Lakh as Life coverage. He has to pay Rs 1,20,635 p.a. as premium amount.

Term insurance vs endowment plan

Mr Tendulkar wants to invest the remaining Rs 1.15 Lakh amount in Public Provident Fund. He wants to find out  the maturity values after 20 years with respect to Gavaskar’s case and also in his own case.

Term insurance ppf vs endowment plan

Mr Gavaskar’s endowment policy may give him a maturity amount of Rs 44.37 Lakh after 20 years.

Mr Tendulkar with his investment plan of Rs 1,15,635 p.a. in PPF, gives him a maturity amount of Rs 55.94 Lakh after 20 years.  That’s a difference of Rs 11.56 Lakh. He also has Rs 25 Lakh life coverage through his Term insurance plan.

Kindly note the following important points :

  • In the above scenarios, Mr Tendulkar’s and Gavaskar’s investments are all eligible for Tax benefits. Some of the investors/advisers may argue in favor of endowment or money-back policies citing Tax benefit as the selling point.
  • Some Adviors/agents may say that you get bonus on endowment/money-back policies. Kindly remember that the bonuses paid by Life insurance companies are accrued but not compounded. The bonus payments are paid on maturity without being re-invested. You loose the benefit of COMPOUNDING.
  • You can invest the balance amount ( in the Tendulkar’s case the balance amount is Rs 1.15 Lakh) in any other investment avenues (like equity mutual funds) based on your financial goals and applicable risk profile. In such cases, the maturity value can be a higher amount.
  • Kindly know the importance of TIME VALUE OF MONEY. Time value of money is about the value or ‘purchasing power’ of money over time. Don’t get carried away if some advisor says that X policy gives you Rs 25 Lakhs as coverage. For many of us, 25 lakh is a huge amount today. But, do you think Rs 25 Lakh is a huge amount say after  20 years from now. Is your current insurance coverage sufficient for your family to continue the same standard of living in your absence?

Already bought a Term plan? You have taken a wise decision. Share the above examples with your friends who believe that “buying a term insurance is a waste of money.’

Remember this simple point : “Any life insurance plan which pays money before you die can be avoided.” Else you may end up buying costly and unwanted life insurance plans.

Do you agree with my views? What type of life insurance do you have? Do you have sufficient Term insurance coverage? Kindly share your comments. (You may visit my post on “Comparison of Best online Term Insurance plans.“)

(Image courtesy of Ambro at FreeDigitalPhotos.net) (Above premium amounts are of LIC e-term plan and LIC New Endowment Plan)

Sreekanth Reddy:

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 10 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

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  • Hello Sreekanth!

    I read your post regarding comparison between Term & Endowment plans and I really liked the post. Thanks for sharing valuable information.

    I have 2 queries:

    1 . I have one Jivan Saral LIC Police 20 yrs. ( june, 13)
    2. one money back policy having same 20 yrs ( started feb,14). When I will get started money back from this policy.

    I am investing around RS. 10,000 to 11 ooo in this policies . This policies correct decision?

    Waiting for your reply , it will help me lot..

    Thanks !!

  • Hi Srikanth,

    I have both term plan ( 1 cr ) & medical insurance ( 25 lakhs ). Please suggest me the best investment plan for my baby girl. She is 1 year old. I know about Sukanya but I am trying to check if there are any better options.

    Any help would be appreciated.

    Regards.
    Abhishek kharey

  • Hi Srikanth,

    First of all i would like to thank you for sharing useful information.
    I have PPF acount and paying since 2011 and investing around 1.5 lakh from last 3 years.
    Also i purchased LIC jeeval saral in feb 2012 and paying 49000 rs premium every year.
    I invested in ULIP b/w 2007 to 2010 and i lost my money.

    Can you suggest me whether to continue investing my money in jeevan saral or shall i go ahead with Mutual funds(SIP). I am planning for long term investment. Also please let me know the best short term investments(maybe 5 year term).

    Thanks
    Murali

      • Thanks. I don’t have any term insurance apart from lic Jeevan saral. As of now I have ppf and lic and an FD of 5lak. I am planning to invest 10k per month for 3 to 5years in MF or equity funds. Please suggest me which can we good yields.

        • Dear Balamurali ,
          If you have dependents, buy a term insurance cover and you may discontinue this policy.
          For 5 year horizon, you may pick one Large cap fund & one balanced fund.
          Ex – Birla Frontline equity & HDFC Balanced fund.

  • Dear Sreekanth,

    Firstly many thanks for publishing this article. I’ve been searching for this comparison with an example for a long time. I had 4 LIC endowment policies, 2 of them made for me by my father. One of these 2 was a 30 year policy which was already 20 years old! I cancelled all of them in 2015 after I found out about term plans, even the 20-year old one simply because I didn’t want to carry on with them. I recently got a term plan. But it would be very helpful if you had some excel file where you did the math behind the returns of your comparison. Also, please see this link to know where the money received from LIC endowment plan holders is going – LIC is growing richer by investing it in the stock market!
    URL Link : https://goo.gl/BcR5x3
    Regards,
    Pratap

  • Very nice and practical analysis Sreekanth!
    I’ve recently found your website and reading almost all articles as they are interesting and eye-openers.

    Query –
    I’ve been working in US for long term and since last 7 months staying in India due to personal reason. I’m currently not working anywhere and would resume work once I go back. I however want to buy a Term policy now, so that I can continue with it, even after acquiring US citizenship. Please provide your valuable insight and suggestions.

  • dear sir,

    I am 35 yrs old and having 12 lacks ctc and I want to do lic policy.
    which one is better ie jeevan anand or term plan.
    I have two kid at the age of 5yrs and 2.5 yrs.
    where I have to do saving of my money .
    I have currently housing loan which is remaiing of 9.5 lacks at 21152 EMI ,
    I have a company provide mediclam of 2.5 lacks per annum.
    kindly let me know best sip plan for future.

  • dear mr.sreekanth,
    how are you? i am planning for a retirement scheme. i am ready to invest 2 lakhs per annum for the next 12 years. so from 13 th year onwards i should get atleast twice the amount that is 4 lakhs per annum as pension . which retirement plan will be good for me.

    thank you

  • Thank you for sharing wonderful article, it was really an eye opener.
    I am 36 years old with 2 kids, my wife is not working. I am Working in IT industry.

    I was thinking of disposing LIC policies and take a Term insurance plan.

    Kindly check my current status and provide a better solution, your guidance is really helpful for me.

    1. My monthly CTC 12 Lakhs before tax. Current take home around 97,000.
    2. Following are my current LIC policy details, with Yearly premium of 46K.

    Since 2005:
    —————
    Jeevan Anand T149 – 2 Lakhs
    Money Back Policy T 75 – 2 Lakhs

    Since 2010:
    —————
    Jeevan Kishore T102 – 2 Lakhs
    Jeevan Anand T149 – 1 Lakhs
    Jeevan Anand T149 – 1 Lakhs

    3. Housing loan which just started few months back with EMI 18000 (25 years period with SBI, planning to do pre-closure).
    4. Having Mediclaim insurance of Sum Assured- 150,000 – Monthly Premium contribution -1,000
    5. Including EMI, house expense and all other stuff. I would spend close to 47K every month. Please note i excluded LIC premium amount here.
    6. I was planning to invest in Term Insurance, Mutual Fund and Medical Insurance. Kindly suggest your better options.
    7. I was thinking of (1 Cr + 50 Lakh accidental benefit) ICICI Prudential Term insurance.
    8. Is there any risk in purchasing the Term insurance online. As per your replies in this article there wont be any risk. But someone mentioned that they are not taking medical test if we buy term insurance online. Please suggest.
    9. Having few lakhs in FD, which my colleague suggests to use it for pre-closure of loan.
    10. Sukanya samrithi is there which i am planning to stop.

    Kindly suggest and provide your valuable suggestions.

    Thanks.
    Rajesh.

    • Dear Rajesh,
      1 – Kindly let me know the tenure of your LIC policies.
      2 – If you not allocated sufficient savings or not yet planned for your other high priority goals like Retirement or Kid’s education goals, suggest you not to pre-close your home loan and instead invest for your goals.
      3 – You can buy a Term insurance plan online (no issues) and buy a plan where Medical tests are mandatory.
      4 – Sukanya scheme is one of the best long term savings option.
      5 – Is your current medical insurance the company provided one?
      6 – Buy a term plan with basic cover and then consider buying a stand-alone Personal accident insurance plan.
      Read : Best Personal Accident insurance plan.
      7 – Suggest you to go through this article – Important articles on the key aspects of Personal Financial Planning.

      • Dear Sreekanth,

        Please find the details below.

        1 – Kindly let me know the tenure of your LIC policies.

        Since 2005:
        —————
        Jeevan Anand T149 – 2 Lakhs – 25 Years(Tenure)
        Money Back Policy T 75 – 2 Lakhs – 20 Years(Tenure)

        Since 2010:
        —————
        Jeevan Kishore T102 – 2 Lakhs – 20 Years(Tenure)
        Jeevan Anand T149 – 1 Lakhs – 16 Years(Tenure)
        Jeevan Anand T149 – 1 Lakhs – 16 Years(Tenure)

        Additionally there is a single premium endowment plan with profits, started in 2015 – paid 33 K (20 Years Tenure). Sum Assured : 60 K along with vested simple reversionary bonuses.

        2 – If you not allocated sufficient savings or not yet planned for your other high priority goals like Retirement or Kid’s education goals, suggest you not to pre-close your home loan and instead invest for your goals.
        —- Considering my current Salary and expenses, how much i can keep in FD and use some other stuff for pre-closure.?

        3 –You can buy a Term insurance plan online (no issues) and buy a plan where Medical tests are mandatory. –
        Please advise whether ICICI Pru is a better option ?

        4 – Sukanya scheme is one of the best long term savings option.
        — Is there any possiblity where goverment can reduce the interest rate to 1 %, since they are having the control 🙂

        5 – Is your current medical insurance the company provided one?
        —– Yes it was provided by company.

        6 – Buy a term plan with basic cover and then consider buying a stand-alone Personal accident insurance plan.
        —Please advise how much basic cover i can have, considering my salary ?
        — What is the drawbacks buying a Term insurance with Basic cover + Personal accident insurance plan.

  • Dear Mr. Reddy,

    I’m planning to buy a TERM plan, i have approached Max life for their term plus plan, If i purchase through an agent for the value of 50Lacks it costing me approximately 10000 where the same plan available at 6330 through their website,.

    My question to you is,
    if i purchase term plan through their website or through Polocybazaar.com will max life will good service for me. Please help me with these details. Please do the needful..

    • Dear Sandeep .. If you believe that your Agent is a trusted person and can help your nominee if there is any claim in future then you may go ahead through the intermediary.
      (or)
      If you believe that your nominee can take care of Claim settlement process on his/her own, kindly consider buying the plan directly from the company through online mode.
      Disclose all the required info in the proposal form accurately and honestly.

  • Dear Mr. Reddy,

    Thank you very much for this wonderful info.

    I’m 28 years old, i don’t smoke or drink. I’m planning for 1 CR term insurance, could you please suggest me the best insurance company. Many Thanks..

  • Hello sir.
    I have one term plan 70 lax with max life . And i want to start invest 2000 with elss franklin taxshield per month .and 2000 rs with equity .long term 15 to 20 years. This is good for me . If not suggest me where i invest this 4000 rs.
    I have a need for any insurance plan or not.

  • Dear Mr. Srikanth, a wonderful read on term insurance plans.
    I would like to know how much of term insurance (limit) an individual can buy with his income. Is there a ceiling based on the income generated by the individual.

    • Dear murali..The maximum Sum assured offered can vary form one Life insurance company to another one, based on their Underwriting policies & guidelines. The minimum cover one should take is around 10 times of his/her gross annual salary.

  • Hi Sreekanth,

    I saw your article and checked ICICI website for a term plan and for my ago(31) i see that the premium is 11,500/- per annum for 30years. My doubt is whether the premium 11500/- yearly remains constant for entire 30years?
    If not what if the premium is hiked unreasonably.

  • Hi

    I am an NRI and I purchased ICICI i protect policy few weeks back for a sum assured of 1.5 crores (30 years of age). My hypertension is under treatment and it is controlled. I have declared it in my proposal as well and I did undergo medical tests for the policy. And I had opted for critical illness cover at the time of proposal.

    Now they are okay to issue me a policy, but with slightly increased cover for critical illness rider due to my hypertension being on treatment. My term policy cost is unchanged. They have asked me to give consent for extra premium for the rider. I am not comfortable paying nearly 8k for critical illness alone and feel that I can manage with my savings/health insurance (for treatment) in worst case. So can I just say no to the rider and ask them to issue the policy with term insurance alone?

    My premium (monthly) is like this:

    Initial premium Revised premium
    ICICI Pru I protect smart: 1025 1025
    CI rider 408 694

    The policy is still in proposal stage and the contract has not been issued yet. I have seen you mentioning that it may not be possible to change anything in the policy after proposal stage. Is it still worth asking? Is there some rule by IRDA that can help in denying specific clause alone during proposal? I really don’t want take and deny the entire policy in free look up period.

    thanks

    • Dear Deep,
      If you have to ask for rider withdrawal then you may have to submit new proposal form I guess.
      Suggest you to kindly let them know about your viewpoint. It is worth asking them.

      • So submitting new proposal means undergoing medicals again freshly? I am already back in US.

          • Hi Sreekanth

            It was much simpler than we had thought. I asked them to issue the policy without rider and they issued it in no time. I feel much relieved now. Overall experience in purchasing icici I protect policy was good. But he biggest negative with them is that one needs to email the customer care for any kind of change or modification to the proposal. And the email support team takes nearly ten days to respond. Sometimes the response seems to be irrelevant too. For instance, I asked them to include some of my previous policy details in my proposal(which I had forgot to mention while purchasing), they kept responding with the xrt form without taking cognizance of the question that was asked.So it takes another 10 days from that point for getting a valid response and you may have to keep your fingers crossed hoping that they respond appropriately. The call center guys don’t have any authority to do anything to the policy. They just act as mouth piece.

            • Dear Deep..Thank you for sharing the update and your experience. So, it is now clear that they can cancel ‘optional riders’ if the proposer wants it so (before issuing the policy).

  • Hi Sreekanth,

    Nice article. I am a technical person and not much into finance things. However, I would like to add one point (not sure whether correct or not), if person with Term Plan dies, at any time he will be left with the savings (PPF or wherever he saved money) and the claim amount, both which his nominee will receive. But in case of Endowment/Money Back plan, only the claim amount will be given to the nominee (I guess, not sure). I believe Term Plan is always best. I have taken Money Back policy without any planning during my initial stage of my job due to force by co-employee. After paying Rs. 4000 for 4 months (total Rs.16000), I didn’t had enough money for daily needs. I cancelled the policy losing Rs.16000 and decided not to go for Money Back policies.

    I am at an important stage of life. I need your advice. I am married, 31 years old and have a 1 year baby. I am working in PSU in Telangana. I have an endowment policy of Rs.5 lakhs with PLI (Post Office) for which I am paying Rs.1400 per month (upto 2039). I have also taken LIC Term Plan through agent for Rs.25 lakhs for half-yearly premium of Rs.3600 (approx.) which due for renewal. But I am worried now reading few articles online regarding Insurance premium paid by Smoker and Non-smoker. I was a smoker from 2008 to 2014, used to have 1-3 cigarettes per day. I stopped smoking for one year, before taking LIC Term Plan. I was unaware of the Smoker/Non-Smoker criteria and not sure what agent has written on the form. Recently, due to some personal tensions, I smoked during Jan & Feb of 2016 but stopped now and I am confident that I will never ever touch a cigarette. However, I found that the Insurance Company will consider me as a smoker. I want to purchase a flat in Hyderabad which costs around Rs.20 lakhs. Now, I started thinking how my wife & child life would be without me. My gross salary is around Rs.53000.

    1) Shall I continue PLI Endowment plan? (I am not sure about the Smoker/Non-smoker part of this policy)

    2) What should I do regarding LIC Term Plan for Rs.25 lakhs?

    I doubt that the agent might have mentioned non-smoker and not sure about the medical tests, whether they have done any tests smoking or not. Its just been 6 months that I have taken this policy and is due for renewal. Can I simply discontinue the policy and take new policy for higher Sum Assure from other Insurance companies.? Do they ask for existing insurance plans (running/discontinued etc.). Please elaborate or redirect me any useful article on this. Will thereby any problems if I take new policy from LIC in future.

    3) How much should be my “Sum Assured” ideally and practically? (Considering loans etc.) and suggest me best Company and Plan.

    4) Is it better to have riders with the Term Plan like Accidental Death/Disability etc. or separately?

    • Dear Sanjay,
      1 – Suggest you to apply for one more term plan by disclosing all the details honestly in the proposal form. It is advisable that you fill the proposal form by yourself. You may also take a Personal Accident insurance plan (instead of a rider). You have to provide details about the existing life insurance polices in the proposal form but dont worry about this. You may take a term plan for atleast 10 to 15 times of your annual salary.
      Once you get the new term insurance policy bond, you can discontinue the existing endowment plan and invest this money for your other long-term goals.
      Read:
      Best Term insurance plans.
      Best Personal Accident Insurance plans.
      Financial Planning pyramid.

      Do you & your family have adequate health insurance cover?

  • Hi,

    I have taken the LIC Jeevan Anand policy (T.149) for sum assured Fourteen Lacks (14lacs). For that I’m paying premium amount of Rs.61,000 per anum. Total policy term is 20 years. so far I paid for 4 years (Rs.244000) . I have to pay remaining amount Rs. 976000 in next 16 years.
    Is it worth to continue the policy payment for next 16 years? or make as paid-up? One more option for me is , I can surrender this policy and invest the surrender money in some other plan? Already I have taken the ICICI term insurance (ismart) for 50 lacs. Please suggest.

    Thanks,
    Ari

      • Hi Sreekanth

        ” say bye bye to traditional plans (of ANY life insurance company, not just LIC’s)”

        as per you “Any life insurance plan which pays money before you die can be avoided.” but in INDIA when we say this 99% will reject this.

        I think this is not right
        LIC have a plan Jeevan Lakshya
        At age 30 if Mr. Ram paid 45637 Yearly up to 22 years for 10 Lac Risk cover.

        1-Mr. Ram will receive approx 2675000 after 25 years as maturity
        2-If Mr. Ram is not live just after 2 years his family Rec. 10 Lac at this time Or 20 lac if accident + every year get 1 lac up to 25th year+ again rec approx 2675000 after 25 years as maturity

        Now will you have any option like term plan or MF or any other which give us above benefit.

        Please reply becoz i know that you have more best option and i will replace this policy as you reply me.

        Arvind Kumar Dubey
        9999247451

        • Dear Arvind,
          If 99% reject this true & valid point, let’s try to create awareness about this 🙂
          1 – May I know the assumed bonus rate(s)?
          2 – If ‘protection’ (life cover) is the requirement, don’t you believe that TERM plan is the right choice. Why should Mr Ram pay Rs 45,637 as premium to get a meager around 10 Lakh as the risk cover??

          Ofcourse, MF + Term plan can be a better option than the one suggested by you.
          Kindly go through my review : LIC Jeevan Lakshya – Details, review & Returns Calculation.

          • Hi,
            Please suggest me with example which MF + term plan will give above benefit to me & my Child also.

            as your review I read this ” Kindly stay away from these kind of plans” .

            every time you suggest as same about all LIC’s policy, as per you LIC’s officer who make this policy have less knowledge about market need and they continue to give us useless Plan & You only you have a great knowledge about policy.

            Mr. Sreekanth Reddy awareness is a good & you doing in a best way but don’t say that only Term plan is best and other plan are useless.

            If you have option suggest me with example which MF + term plan will give above benefit to me & my Child also.

            • Dear Arvind,
              It’s all about common sense and great knowledge is not required to understand the importance of Term insurance plan.
              Kindly reply to my queries that I have asked you in my previous comment (let’s go step by step).

              I have said that Term plan is the best and a must if life cover is the requirement and if the ‘maturity returns’ are a priority then there are plethora of investment avenues which can beat inflation and can give you a positive real rate of return.
              Kindly go through my above article again. Term insurance + PPF can be a better option (forget even about MFs) than traditional life insurance plans.

              • Dear Sir

                Please “If you have option suggest me with example which MF +PPF + term plan will give above benefit to me & my Child also.” like-
                1-at mishapping time give S.A.
                2-No premium payment in future
                3-Every year give some money to nominee
                4-again give a maturity amount

                If u have any option then you know there are many person even me also will get more profit by your option & say by by to above Jeevan Lakshya benefits.

                Otherwise i know you are a master in puting questions by you with Shyamkumar Rudrapati ji
                March 28, 2015 at 11:39 am

                • Dear Arvind..You are yet to answer my questions. Kindly answer them.

                  What’s wrong in putting right questions.
                  I have mentioned in the article about Term plan + PPF combination with facts & figures. What else you require dear?

                  • I think the person did not answer because he cannot. Your opinion is correct that term policy + PPF is best. Basically, If you have crossed off PPF limit,all medical components, already have a medical cum accidental insurance (Term) plan, and below the age of 24, you can then consider buying a Endowment plan just to make a habit of saving up money and considering that in india returns from all other avenues is lower than 7%.

  • Is it advisable to buy TERM PLAN Online.
    Is it difficult to get claim settlement in case of ONLINE PLANS as compare to OFF LINE PLANS

  • Good post! To add more on this if you surrender an endowment policy before maturity , your 1 year premium + 50 percent of your second year premium+ service tax is deducted.
    Term insurance are always better than any other type of insurance! My 2 cents!

  • Hi,

    I’m already investing in SIP and I want to go for either a Term insurance plan or Child plan. Do you think Child plan doesn’t serve the purpose and the returns are pretty low ? Can I go for both, Term insurance and Child plan since in later I do get the money back after maturity.
    Please suggest as I’m confused over taking a child plan and currently the equity market doesn’t seem to be working as I would have liked to although I will definitely still continue with my SIPs. Not sure If the SIPs are going to give me returns that a person who has invested say 15 years back would have got.

  • Hi Sreekanth,

    Thanks for such a nice article. This really has very useful Info which everyone may not be aware of .
    Really appreciated. Cleared all my doubts as I am one of those who used to think that term insurance is waste of money.
    Now I realised I was wrong. Thanks Mate !

  • Very useful information. However have a query. If a person has ULIP linked insurance, then also term insurane to be taken along with ULIP linked plan?

  • Hi Sreekanth,

    I read your article & come to a conclusion for a term plan.
    Right now I dont have any pocily & investment except PPF.
    I am married with one child(1 Yr) my age is 30 yrs I need suggestion for one health insurance plan , term plan & also child plan. Do I need child plan now? My annual income(5.5 lac) with only source of income

  • Dear Sreekanth,

    Awesome explanation by u..I really loved the way you have explained in simple manner. Since 4 years I am investing in Jeevan Saral, Jeevan Tarang and LIC money back policy so I am planning to surrender those policies for which I pay appx Rs. 22000 premium yearly. Currently I am also investing Rs 10000 yearly in PPF.

    But at after maturity of term insurance, we gets nothing.
    So which investment plans are better to invest for returns?
    Should I invest in mutual funds or ULIP as ULIP is linked with insurance? Which is better?
    How should we select the funds in mutual funds?
    What should be the premium amount yearly for mutual fund and ULIP if I want to receive Rs 15 Lakh on maturity?

    Kindly advice

  • Sir,
    Many of ur articles are informative. Specifically regarding term insurance there are many hassels for NRE as insurance company people themselves are not knowing properly.
    My son born on 22/9/81 is a green card holder in USA. we have taken a term insurance for 50 lacs from LIC and paying 19400/ plan 190 for 35 years. We want to take for 1 cr when he visits India and keep the paper work ready. When he came recently it could not be done as LIC epolicy is not for NRE they say and HDFC Click 2 also say the same.
    Pl guide which policy whether on line or direct and which company.
    Can we take for his wife who is also a green card holder and not working.

    Can I take for my daughter who will be completing her MBBS shortle and yet to work and is in India.
    Kindly reply to my mail also inaddition to the blog as otherwise I will not know.
    Like this many are there abroad but have not taken term insurance either there or here.

    Regds
    Sethupathy

    • Dear Mr sethupathy,
      If your daughter-in-law is a home-maker, term insurance (life cover) is not required. She can take once she is employed.
      Kindly check out with Kotak Life & Max life.
      When did you take life term plan? (after acquiring green card ?)

  • Hi Shreekanth,

    Cool information. I too was lured by Endowment plan four years ago by a LIC agent which offered Cover+Endowment+Return+periodic payments and after a year when I did my own research found that I should have taken a pure Term Plan and then did that. Now, I want to get rid of this all in one LIC plan but agent says not all the principal money will be paid back :(.

  • Dear SIr,

    I have jeevan Lakshay endowment plan. but after reading many articles on term insurance plan and benefits of it. I want to switch down my plocy to term insurance plan

    Kindly guide me how to switch the policy

  • Hi Sreekant my name Leela…my husband is paying 48000 per annum…Lic Jeevan Saral policy…3 years completed.its 10lac policy. I m having doubt are we paying good policy? And we have Jeevan anand 1 lac policy. Now we are planning to take TATA AIA term policy 50lacs…premium is around 11k…please suggest me. LIC term policy is best or TATA AIA?

  • I took a jeevan Anand plan for Rs. 70000/- premium per year (Sum assured: Rs. 10,00,000) and then used cooling off period to surrender it. Then another insurance agent claimed that I cant take a new insurance plan, if I had used cooling off scheme and asked me to take a new policy for reduced premium (later I came to know that I was misguided) I took Rs. 15000 Premium per year (jeevan Anand 30 years. Sum assured Rs.4 lakh). Now i read many articles and came to know that Term insurance is the,best. Shall i use cooling off option for my 15000/- per annum policy (SA: Rs. 4,00,000 and term 30 years). Can i use cooling off option for ‘n’ number of policies?

  • If i take th same examle of yours and do what you say i get more if i simply buy a jeevan anand policy am i correct. My age is 26 years. Plesse let me know

    • Dear Rahul,
      No. Do not buy traditional plans like Jeevan Anand.
      Instead buy a Term plan if risk coverage is your requirement, else invest in other options if your objective is to accumulate wealth or to get decent returns.

  • Hi Sreekanth,

    I have already made a mistake by taking an endowment policy(Jeevan Anand for term of 30 yrs) and have paid 2 premiums around 53000 in total(around 26.5 thou annual premium). I am 29 years old and My annual salary is in 5.5 lacs range. I was not aware that much when I took the policy from a known person. If i stop paying my premium, I am going to lose 53k which is a large amount for me.Which is the better option? to discontinue paying premium or to surrender the policy after paying 3rd premium. How much will i get if i surrender policy after 3rd premium.Kindly guide what is the best way to deal with my mistake. One option I have in mind is to continue with the policy and take an additional term insurance plan. Kindly suggest.

    Regards,
    Gaurav

    • Dear Gaurav,
      Suggest you to surrender it after the third year. It is better to get out of this plan ASAP and do not compound your mistake. You can get guaranteed surrender value which is roughly 30% of premiums paid excluding the first year premium. You are going to make a LOSS but its ok. You can allocate the future premiums in mutual funds and one basic Term insurance plan.

      Read my articles on :
      Best Term insurance plans
      Best Personal Accident Plans

      • Thanks Sreekanth for the suggestion.

        One thing though, I am wondering if I would get any benefit by paying 3rd premium. As I have paid 2 premiums of around 52828. If I pay the 3rd premium, total amount would be 79242 and if I am going to get the 30% of premium paid excluding the 1st premium, it comes down to 30% of 52828 i.e. around 15848 so I lose 10566 amount again by paying the 3rd premium.As per calculation I don’t see the benefit involved in surrendering the policy after 3rd premium. Is there any different benefit involved in formally surrendering the policy after 3rd premium instead of not paying the 3rd premium itself. Kindly suggest.

        • Dear Gaurav,
          If you surrender after the 3rd year, you get accrued bonuses (if any) for the last 3 years.
          Ideally, it is better to discontinue the policy now and allocate the future premiums to diff investment avenues. Book losses.

  • Hi Sreekanth,

    Wonderful explanation with illustration. what is preferable for term insurance-Should I buy online or directly with agents in insurance companies ?. Is there any change in premium in two cases? Also since my age is 49 years now, would it be advisable for buying term insurance?

  • Thanks for your reply sreekanth. I don’t have any dependents as of now. Suggest me a plan considering 2 dependents (Max.) for the future. I’m sure that I will not be working more than 45 years as I’m a software employee. I can invest 8k (10k Max)per month until 45 years.
    Awaiting your response.

  • Excellent Illustration Mr.Sreekanth. The best point in your illustration was it was in simple terms and everyone can understand it easily.
    I’m a software employee [Age 25] and earning 35k PM. I’m planning to invest 8ooo PM.
    Kindly share your valuable suggestions. Also consider that I may not be working more than 45 years of Age.

    Thanks in advance.

  • Hi Sreekanth,

    Great Article ! The illustrations are self explanatory.

    I had a query though.
    You suggested to opt for 10 times of our annual income as a life cover. Since annual income keeps on increasing do we keep buying additional term insurance policies to cope up with our increased income? If yes, then at what intervals is it advisable?
    Do we have options to upgrade an existing plan or do we have to buy a new one altogether ?

    Regards,
    Snehal

    • Dear Snehal,
      That’s just a ‘thumb rule’.
      The better way of calculating the required insurance amount would be – by calculating the Present Value of all future salary payments (including the growth/salary rise) + Financial liabilities + Fin commitments/goals – existing life insurance coverage.
      Yes one needs to review his/her insurance requirements once in 5 years atleast or if there are any major changes in his/her financial profile.

  • thank u for your comments, discussions and examples in this blog. i am pleased to read ur articles and learn some thing new.

  • Hi

    I have taken a HDFC Life Young Star Plan for my child born few months back . The premium is 50, 000 Rs for 5 years and after 15 years i was told by bank i would get around 15 lakhs , I want to know if it is true or not , If not atleast how much i will be getting , thanks

  • Totally agree with you. Term insurance plan is a must for all.
    Other saving components should be invested in various instruments such as Mutual funds, RD and PPF.

    • Dear Feroz,
      General thumb rule is, you may take 10 times of your annual income as insurance cover. You may also add any financial commitments & liabilities (if any) to it.

  • i have 4 term insurance
    ICICI online – 40 lakhs for 4 yrs back – – 8000 p.a / 30 yrs
    AVIVA -return of premium – 28 lakhs – 2 yrs back – 12500 p.a / 25 yrs
    ING – limited pay – 25 lakhs – 2 yrs back – 40000 p.a / 7 yrs pay
    Birla – regular – 56 lakhs – 1 yrs back – 13500 p/a / 30 yrs pay

    THIS IS WASTE MONEY OR NOT

    • Dear Feroz,
      I believe some of your insurance plans are not pure Term insurance plans.
      Share the complete PLAN names.
      Is it Birla Sun Life Vision Regular Returns Plan? Is it ING Limited Payment Endowment plan? Are you sure these pure Term insurance plans?
      If yes, then its waste of your money. Kindly understand about the products that you have invested in.

  • Hi,

    HDFC Click to invest is a ULIP plan i guesss , how can we plan child future based on Market risk. The amount invested may go up or down also right. can we go with LIC Children Money back plan ..Suggest pls

    • Dear Abhi,
      I think you are confused HDFC Click 2 Protect plan with HDFC Click to invest plan.
      It is better not to invest in any ‘Child Plans’ (of any company’s).
      Buy a good Term plan and invest in various other investment options for better returns.

  • TERM PLAN V/S ENDOWMENT PLANS
    WHEN YOU CALCULATE THE RETURNS OF A ENDOWMENT PLAN YOU MUST DEDUCT THE PREMIUM PAID AS MORTALITY CHARGES( PREMIUM OF TERM PLANS). DISABILITY BENEFIT IS NOT AVAILABLE IN TERM PLAN,WHEREIN 10% OF THE SUM ASSURED IS PAID IN CASE OF PERMANENT DISABILITY. THERE IS WAIVER OF PREMIUMS IN CASE OF PERMANENT DISABILITY.DOUBLE ACCIDENT BENEFIT IS NOT AVAILABLE IN MOST OF THE TERM PLANS. LOANS ARE NOT AVA LIABLE UNDER THE TERM PLANS. IN AN LIC POLICY YOU TAKE A LOAN AFTER THREE YEARS OF PAYING HE PREMIUM. THE INTEREST PAID ON THE LOAN TAKEN IS LESS COMPARED TO THE LOANS AVAILABLE IN THE BANK.

  • Dear sreekanth.
    Is there splitting of LIC JEEN ANAND policy based on Sum Assured. like splitting up of 1 Cr policy into two policies of Sum Assured X and Y where X+Y=1 Cr. If so plz let me know.

    • Dear Nagesh,
      Yes, it is possible to split an insurance policy (but merger is not allowed).
      But, why do you want to split the policy? If ok, let me know the reason for choosing Jeevan Anand?

  • Hi sreekanth,
    I have taken an old jeevan anand policy for SA = 1 Cr commencing from 11-12-2013, with annual premium of rs 206270/-. The projected returns assuming the present bonus rates and FAB after 40 years its summing up to rs 6.55 cr after 11-12-2053. if I calculate with uniform series compound amount with an interest of 8% its coming to 5.65 cr which is less than what I get actually. please suggest me where i’m going wrong in calculations.

    • For the same SA the e term lic policy quoted me as Rs 20627 for 35 years. which is exactly 1/tenth of the above premium.

      • Dear Nagesh,
        LIC’s e-Term plan is an Online Term insurance plan. It is pure insurance plan. No bonus is given on this plan. Also, it is available online. Hence it is lot cheaper than an Endowment policy like Jeevan Anand.

    • Dear Nagesh,
      May be the projections are on a higher side. LIC may or may not declare future bonuses as in the past.
      What do you mean by ‘uniform series compound?’
      I believe 8% is also on a higher side for a traditional policy. What is your view?

      • uniform series compound amount is the future worth of the money that is deposited in equal amounts , i.e., like every year premium … that is compounded annually with an interest rate say “i” like I mentioned above as 8%.

    • Dear Shiva,
      I personally believe that diversification is not needed when taking a term insurance plan. Go for the one which is affordable and suits your requirements. Help/guide your father in completing the proposal form. Do not hide/conceal any facts.

      Most companies cite incomplete documentation or concealment of facts as a reason for rejecting claims. Hence, while buying a life insurance it is of utmost importance that you furnish accurate information.

      Kindly read my post on “Comparison of online term insurance plans.’

  • Hi Sreekanth,

    I bought Term insurance 25 lakhs for 40 years through broker that i have paid premium Rs.6892 yearly.

    after looking to your blog, i have realized offline policy is more costlier than online policy.

    Could you please explain clearly any difference between online & offline except broker commission?

    I have confused because of premium amout .

    My plan is : HDFC CLICK2 PROTECT PLUS
    My age is 32.

    Thanks & Regards
    Rajesh

    • Dear Rajesh,
      As opined by you, online Term Plans are cheap because no Agent/Distributor is involved.
      Most of the online Term plans do not offer Optional riders like Accident Death Benefit, Total Permanent Disability Rider and Critical Illness rider. Some Online Term plans offer only Accident Death Benefit rider.
      If you want comprehensive coverage inclusive of these riders then you can get them mostly in Offline Term insurance plans.
      Besides this there is nothing much difference in terms of service,claim settlement procedures etc., between online and offline term life insurance plans.
      Do keep a track of your insurance coverage requirements once in two years. If required increase your quantum of life insurance coverage. The plan that you have opted “HDFC Click 2 Protect Plus” is a good plan.

  • Hello Sreekanth,

    I was looking at this kind of illustration..Thank God i have found this here.

    Appreciated.

    Thanks,
    Chandra A N

  • Yes i agree with you Mr. Reddy………but we can give combination of endowment and term assurance…….

    • Hi Jagadish. Nice to see you back and thank you for the comment. We should blame investors also. We need to do basic homework before buying any financial product. We need to ask lot of questions to advisers. End of the day it’s our hard-earned money, we need to be pro-active.

      • Absolutely. The agents will always sell you plans with maximum premium so that they can get maximum commission. We, as investors, need to be very careful about our hard-earned money.

        • Dear Sachin,
          Thank you for sharing your views.
          But, not all agents / advisors are bad. We (investors) have to be aware of the financial products that we buy. We need to do a little bit of research (home-work) before investing in any product.

  • Ekdam zhakas shreekanth…same illustrion I was shared on basunivesh site…this gives more clear picture….

    I am a HDFC life key partner to all the customer I am sggesting the same.

    God bless u dear

    • Thank you Ajay.

      “Don’t buy life insurance because you are going to die, but because those you love are going to live.” Buy right insurance product with sufficient coverage. Avoid insurance products which you do not understand. Pure term plan is easy to understand and more than enough.

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