The question
that arises, when anyone hears the word “INSURANCE” or “POLICY” is “Why should
I take insurance?”. This article is an introduction to series of blogs which
will educate an insurance naive. The next articles will focus up on suitable
plans for appropriate age groups.
Insurance is unlike, any other financial instrument that provides short term
returns. Many people compare insurance as their investment option. The
comparison finally leads to loss of insurance and wining of Mutual funds in
this unequal chase. This comparison is
like a running race between fish and a fox, which is completely irrelevant.
Insurance is
a financial instrument that safeguards the financial interests of the family in
the absence of the sole bread winner. People consider insurance as unnecessary
money sucker as they are unaware of the benefits or they are mis-educated about
the products. This stereo typing happened due to term plans, which won’t return
any benefits if policyholder survives.
Scenario in
insurance market has changed with the entry of endowment plans, which will
provide maturity benefits if the policyholder survives. These policies paved
path for many hybrid policies, which were now being targeted based on the age
groups and their requirement.
Insurance
which was born with an aim of providing financial security is now equipped with
an investment feature with new age structured policies. As they were basically
targeted for insurance the returns provided on survival will be little less
compared to investment options like MF’s, stocks and Bank FD’s. This is negated
by the life cover that no other financial instrument is providing.
Considering
insurance as an investment option is a right move for low risk profile individuals.
Tax benefits provided under 80 ( C ) and 10(D) are unique to insurance, which will
provide an edge over low risk financial products like Bank recurring deposits.
For people
who are interested in taking risk were also accommodated in insurance segment
with the help of ULIP’s (Unit Linked Investment Plans). These plans will
allocated 1/8th of premium to insurance and rest in stock markets. Variety
of funds were available for selection and can be chosen by policyholder
himself. In case policyholder faces confusion, fund managers will guide based
on their risk profile. Risk profile is being determined by giving questionnaire
to customer. Funds are allocated based on customers preference and can be
swapped if needed. This instrument gives an option to invest in insurance and
stocks at the same time.
Insurance
has became a wholesome financial instrument, which can cater to the requirement
of all segments of individuals. Besides reducing the risk of financial liability
in case of risk, insurance also provides a chance to raise funds for future
needs. These options make insurance a mandatory item in every individual’s
portfolio.