Insurance is a high priority investment option in the minds of the Indian investor for decades now. In reality, it is not to be considered as an investment product at all. This option was made to look appealing by insurance companies as they provided a guarantee in repaying the principal along with some appreciation and also an insurance cover. Hence, in the unforeseen eventuality that the insurer is not alive, his dependents get a significant sum of money.
Pitfalls of Insurance as an Investment
Investors failed to realise that in return for their long-term commitment to pay premiums, what they got back was a pittance. When taking out a policy they only see the high numbers quoted and it looks like a rich reward. At the time of maturity when they receive the maturity amount, only then do they realize that the amount is not a significant growth of their monies. For creating this corpus, they would have shelled out all their lifetime earnings by paying premiums.
The tax saving advantage of the premium paid made insurance look like a much better option compared to other investment avenues available. I even heard the mother of a 2-year-old child asking her husband to take insurance for her child to meet future educational needs. It is not her fault because that is how her parents have saved.
Many are so very sincere and committed to paying the hefty premiums without realizing that, all their commitment is doing is making the insurance company rich and not them.
Increasing Awareness and Options
Off late there is increased awareness about the poor returns that insurance gives. Even with the tax savings that the product delivers, it is not worth an investment and people have been moving to term policies.
People shied away from term policies because they will not get any amount in return if they are alive after the policy term ends. They felt bad that they the premium paid goes waste as most of them are pretty confident that they will live beyond the policy term. Little do they realize that, however healthy you are, there are still some chances that things can go wrong. Life is not fully in our control.
A New Entrant – SIP Insurance
Now, there is a new option available for those who thought that term policy premium payment is going waste. Mutual Funds have begun to give insurance cover for SIP’s. It is called SIP Insurance, where, while you are investing through your SIP’s in mutual funds, you get an insurance cover without any extra cost. Moreover, all the money you pay for the SIP earns the highest returns. Insurance comes free.
Reliance Mutual Fund gives the highest returns in this segment with 120 times the SIP amount as the insurance cover in the 3rd year of the SIP investment. Coverage begins from the second month of the SIP with 20 times the SIP amount for the first year, 50 times for the second year and 120 times for the 3rd year.
The only condition is that the SIP should not be disturbed or redeemed till the age of 55 for the investor. One can start a SIP of 10K, in the 3rd year get 12 lakh insurance cover and then stop the SIP in that scheme and take it in another scheme. At present each fund has a maximum limit of 50 lakhs, so if a person takes a SIP in 3 or more fund houses, over a period, they can have a Rs. 2 crore insurance cover.
Regular term policies have their own challenges as one’s age catches up. Many investors have been denied insurance coverage because they have some existing disease or the premium gets increased because of the pre-existing disease. In SIP Insurance, these conditions don’t exist. Any individual who is investing in a SIP and has opted for insurance gets covered, immaterial of his age or disease status.
A big sigh of relief to those who are in the above condition. This SIP Insure product option takes away the challenges of investing in insurance and getting lower returns. Get in touch to know more about this new avenue for your life savings.