Why you should take insurance?
Insurance helps to provide compensation for any kind of loss like death, illness.
It is possible when a person subscribes to an insurance policy and pays the premium till the end of the policy period.
It ensures your life and helps to save money for future goals. The premium has arrived through your age, term of the policy, and the sum assured.
How will you get the money?
The person who has taken an insurance plan on surviving the term of the policy gets the sum assured along with the bonus. On the other hand, if he dies before the end of the policy the sum assured is given to the nominee.
Moreover, some plans provide guaranteed additions that replace a bonus. The difference between a bonus and guaranteed addition is the bonus varies year to year according to the insurer’s profit but the guaranteed addition remains the same. Both these things are calculated on yearly basis and add up within the policy. It is paid only during death or maturity, not at regular intervals.
Nature of insurance plans:
The insurance plans are generally conservative. Here the money is not invested in a highly volatile stock market. Here the money grows gradually and you can calculate your returns at the end of the policy period.
It is best suited for investors who don’t want to invest their money in the stock market even for their long-term goals.
What is the difference between an endowment and a money-back plan?
For the person who has taken an endowment plan, the sum assured with the bonus is paid only on maturity. On the other hand, the person who has taken money back plans the sum assured to the person is paid at regular intervals.
Examples:
A person takes an endowment plan for 15 years for a sum-assured of Rs.1.5 lakh by paying an annual premium of about Rs.15000 the maturity value comes near Rs.225000. On the other hand in the money-back plan, there are two payments of Rs.56250 which is taken out of the sum assured and each after every 3 years, and the balance Rs.112500 on maturity along with the bonus.
Dis-advantages:
The first disadvantage is its inherent nature of low returns which amounts to 5%.
And, the second disadvantage is low liquidity. It is not flexible and the duration of the policy can’t be changed. There is also no way for partial withdrawals and an early exit to loss of premium.
How your approach should be?
The key here is if you take an insurance plan then pay the premium amount till expiry.
The surrender of policy leads to your loss of the amount being less than the amount paid as a premium.
