Many people get confused with normal life insurance policy, endowment (money back policy) or term life insurance policy. Term life insurance is the purest form of life insurance. Generally, people want to save tax and the easiest way they have in mind is to take a LIC policy. They contact agents. Agents love to sell you normal life insurance or money back policy because they get more commission from it. Under 80C section you can have rebate upto 1 lacs and people pay premium upto 1 lac to save tax.
First thing to keep in mind that you only need life insurance if you have liabilities. The amount of insurance also depends on type and number of liabilities. Suppose you have a loan, your parents depend on you, your wife, your children etc. What will happen if you die today ? You need enough cover of your life so that your liabilities will complete/survive in your absence.
People mix investment with life insurance with each other. But always keep in mind that in spite of taking a Normal Life Insurance or Endowment policy, you can take PPF and term insurance policy. Endowment policy will give you 5-6% return and by paying high premium you get low sum assured. PPF will give you 8.8% return and term insurance gives you high sum assured at a low premium.
Let us take a example that two persons A and B of same age 30 years choose two different paths.
a) Person A takes a normal life insurance like Jeevan Anand for a period of 25 years with a premium of 60,000 per year. Sum assured is 15 lacs. He will get around 35 lacs at maturity.
b) Person B opens a PPF and take a term insurance for a period of 25 years with a premium of 7,000 per year. Sum assured is 50 lacs. He invest remaining 53,000 every year in PPF for 15 years. After that he invest matured amount of around 16 lacs to 10 years FD at 9% and continue investing 4,417 (53000/12) in a RD for 10 years. He will finally get around 48 lacs.
Now you can decide which one is beneficial.
First thing to keep in mind that you only need life insurance if you have liabilities. The amount of insurance also depends on type and number of liabilities. Suppose you have a loan, your parents depend on you, your wife, your children etc. What will happen if you die today ? You need enough cover of your life so that your liabilities will complete/survive in your absence.
People mix investment with life insurance with each other. But always keep in mind that in spite of taking a Normal Life Insurance or Endowment policy, you can take PPF and term insurance policy. Endowment policy will give you 5-6% return and by paying high premium you get low sum assured. PPF will give you 8.8% return and term insurance gives you high sum assured at a low premium.
Let us take a example that two persons A and B of same age 30 years choose two different paths.
a) Person A takes a normal life insurance like Jeevan Anand for a period of 25 years with a premium of 60,000 per year. Sum assured is 15 lacs. He will get around 35 lacs at maturity.
b) Person B opens a PPF and take a term insurance for a period of 25 years with a premium of 7,000 per year. Sum assured is 50 lacs. He invest remaining 53,000 every year in PPF for 15 years. After that he invest matured amount of around 16 lacs to 10 years FD at 9% and continue investing 4,417 (53000/12) in a RD for 10 years. He will finally get around 48 lacs.
Now you can decide which one is beneficial.
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