People could buy term insurance products to protect their families in the unfortunate event of their death and also make some money, according to Radhakrishna Sharma, professor (Finance), Justice K.S. Hegde Institute of Management, Nitte. He was delivering a talk on wealth management organised by the Mangalore Chapter of the Institute of Cost and Works Accountants of India, here on Saturday.
He said people took unwise decisions and bought investment products such as endowment policies and money-back policies from insurance companies. “Money back policies are the worst (type of investments),” he said. Insurance products should be bought only for the risk coverage – much like vehicles insurance. The purpose of insurance is that family should be unaffected financially in the event of the death of the policy-holder.
Pure term policies – where there is no return in the event of survival – would allow huge savings every year, which if invested in right products would leave the person with huge corpus. He gave the following example: A 40-year endowment policy with sum assured of Rs. 5 lakh would require a premium of Rs. 12,000 per annum, but the term insurance for the same sum would require a payment of Rs. 1,000 per annum. If the policy-holder invested the saved amount of Rs. 11,000 every year in good investment products earning compounded interest of 15 per cent, he will get Rs. 2 crore at the end of the term of 40 years. Under the endowment policy, he would get back approximately Rs. 25 lakh with bonuses accrued after 40 years.
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