Plans allow systematic enhancement of wealth with insurance
There are two common forms of life insurance in the industry – Term insurance, and unit linked plans, or ULIPs. There is another kind of insurance – which is popularly known as investment based insurance – endowment plan. One of the questions that rise in the minds of the prospective Insurer is: “Should you use life insurance as an investment?” In other words, when there is a considerable outlay that is planned towards insurance policy, why should we not get returns out of the investment, along with the insurance cover? That, precisely, is the idea behind endowment policy, where you could buy life insurance and also stand to gain from the benefit perspective.
One of the popular attractions associated with investment in insurance is that you would be eligible for regular and accumulated bonuses and would also benefit from survival benefits, at the end of the term of the insurance policy. When you buy life insurance, you would also be eligible for returns at predetermined rates. As far as bonuses are concerned, they tend to get accumulated and get paid to the Insured upon Maturity of the insurance policy, or to the nominee upon death of the insured. And even if you survive the duration of the life insurance policy, you would get a maturity amount on survival.
It all seems attractive, but for a few aspects that deserve your attention and consideration.
You could save on premiums. When the investment part of the equation is out, your life insurance policy would give you just that – insurance cover. You could buy life insurance as a standalone entity, as Term Insurance or as ULIPs, and could invest the other part of your outlay on instruments that give you higher rates of returns. You may not have a maturity amount with such an insurance policy, but you could very well save on premiums that you would have paid otherwise.
It is clear from the discussions that life insurance policy should give you insurance cover, since the benefits that you get in terms of maturity amount with an Endowment Plan would be compromised on account of the higher premiums paid otherwise. When you compare life insurance with the returns that you get from investment instruments, you would naturally choose to buy life insurance purely for the sake of what it is supposed to provide – insurance cover, and not to serve as an investment option.