Insurance is never an investment, rather a protection against risks and contingencies.
Though it may seem like a raw deal, it is in fact not about life but about death. Have doubts? Then, have a look at term insurance in which the family does not get paid if the insured is alive after the term. Be it medical insurance where your medical expenses get covered or vehicle insurance in which your vehicle receives accident coverage, life insurance is all about getting the damage cover for your life.
However, people nowadays insist they get their money back in life insurance.
Though term insurance is regarded as one of the most effective forms of insurance given its lesser premium and bigger sum assured, it is dumped by many as they lose money if the insured is alive after the term.
However, taking term insurance along with an SIP will be an effective form of investment.
Here, let us look at the case of a 30-year-old healthy person who invests in two ways- in a term insurance along with an SIP & in a traditional policy. Studying this, let us calculate the approximate amount of premium and returns he will receive in both these cases.
If he takes a traditional policy with a sum assured of 1 crore, the premium will be around 3, 54,000 per annum and in 31 years, he will have paid 1, 090,000. After the maturity period, the insured gets 2, 570,000 including the bonus amount of 1,570,000.
On the other hand, if he takes a term insurance of 31 years for a sum assured of 1 crore, the premium he will have to pay is 10,000. In 31 years, he will have paid 3, 23,000.
Let us see what happens when he joins an SIP along with this term Insurance. If he does an SIP of 3, 44,000 per annum for 31 years (subtracting 3,54,000-10,000), investor gets a return of 9 crore approximately at the end of 31 years, which is a surplus of 6.7 crore if compared to a traditional policy.
Planning your Term Insurance with an SIP (Systematic Investment Plan)will always give you the edge over doing things conventionally. But let us also not be blinded by the benefits of a traditional policy.