Sunday, November 22, 2009

Term Vs Endowment Plans

- Chellamuthu Kuppusamy

In response to the previous post "Jeevan Anand - Unique insurance plan" Vinod has commented:

"My experience on this:

Policy is good.

Since this is mainly life insurance, the cover to premium required ratio did not fit me well.

Since I was looking at life cover that could substitute my income (to a good extent) so financially my family is not in the woods to pay up all the emi's and liabilities. The premium required was too high. For those who can afford the premium this policy is great.
I have now decided to go for term policy for covering life and with the rest of money invest wisely (as much as possible ;) )

Best regards,
Vinod
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Follow up communication:

Hi Vinod,
I am glad you said this. That is precisely how one should view insurance. But in India insurance is not considered as an instrument for life cover alone. People tend to ask, “What do I get back after paying my premium?” A reply that their family is protected against the financial loss due to an unlikely ecent of their sudden demise does not suffice.

That’s why penetration of term insurance plans are very very low in our country. Data reviels that only 26 per cent are insured in India. That too the average sum assured per policy is just over Rs 90,000. This is never going to be sufficient.

As you said, premium to sum assured ratio is high in India, because we rarely have term insurance policies. Invariably every policy holder expects a maturity value. This leave the insurers with no choice but to promote emdowment plans.

For instance, in one of LIC’s term assurance plans Anmol Jeevan – I, I would have to pay just Rs. 2,762 per year for a life cover of Rs 10 lakhs. In Amulya Jeevan, I would pay just Rs 5,850 per year for a life cover of Rs 25 lakhs.

Whereas as in Jeevan Saral (an Endowment plan), I would only get a coverage of Rs 1.25 lakhs for an annual premium of Rs 6,000.

But as everybody says, endowment plans gives back a maturity benefit which is not the case with term assurance plans. That does not matter if you are a streetsmart investor.

4 comments:

Nagappan said...

This is an important concept and glad that you have been writing about it . . . v r used 2 freebees . . .nothing comes free . . .

Anonymous said...

The excellent message gallantly)))

Anonymous said...

Amiable post and this mail helped me alot in my college assignement. Thank you on your information.

Anonymous said...

Term Insurance is Great! Just make sure you expire before the policy does :-)