Term Vs ULIP/Moneyback/Endowment Life Insurance Policy

Term Vs ULIP/Moneyback/Endowment Policy

Insurance and Investments should always be kept separate.

There are ULIPs, Moneyback and Endowment Policies in the Market which provide Insurance cover and at the same time provide Returns at the end of the term.

There are term policies which provide only Insurance cover and nothing when the policy term ends.

Apparently, the first option seems better and also, the insurance agent would tell you the same, but that is not the case.

The following example shows you why.
This is a comparison between LIC's (www.licindia.com )

Term Policy – Amulya Jeevan – Plan 177

Features: Pay, Get Insured and Forget. You pay a certain amount each year. You do not get anything at the end of the term of the policy. This is similar to Car/Two-Wheeler or Medical Insurance.

Endowment Policy - Jeevan Mitra(Triple Cover Endowment Plan) – Plan 133

Features: Pay, Get Insured and Get Returns. You pay a certain amount each year and if you live till the completion of the term, you get the Sum Assured + Bonus.


Here is an example to show the comparison in a better manner.

Endowment Policy - Jeevan Mitra(Triple Cover Endowment Plan)

Age at entry: 35 years

Policy Term: 25 years

Sum Assured: Rs.5,00,000/-

Premium Paying term: 25 years

Mode of premium payment: Yearly

Annual Premium: Rs.27,266 /-


Returns:

In case of completion of Term : Rs. 5,00,000 + Bonus (This is a variable component, approx 5 to 7 % of the sum assured for each year of premium paid which is Rs.6,68,563 to Rs.9,02,871 ) + Life


In Case of Death your family gets

Natural : Rs. 10,00,000 + Bonus (This is a variable component, approx 5 to 7 % of the sum assured for each year of premium paid)

Accidental : Rs. 15,00,000 + Bonus (This is a variable component, approx 5 to 7 % of the sum assured for each year of premium paid)

Term Policy - Amulya Jeevan

Age at entry: 35 years

Policy Term: 25 years

Sum Assured: Rs.25,00,000/- (For a cover this huge, in case of a Moneyback/Endowment policy you would pay about Rs.1,25,000 as premium)

Premium Paying term: 25 years

Mode of premium payment: Yearly

Annual Premium: Rs.10,925 /-

Returns:

In case of completion of Term : Life

In case of Death our family gets

Natural : Rs.25,00,000

Accidental : Nothing – This needs to be covered by taking an exclusive Accidental Death policy which is easily available at Rs.1000 - Rs.1500(e.g. SBI Life, Royal Sundaram, ICICI Lombard) for an Accidental Death cover of Rs.10,00,000.

Assuming that we take an Accidental Death Cover of Rs. 20,00,000. We spend Rs.3000 more.

Effective Cost = Rs.10,925 + Rs.3000 = 13,925

The Calculation

The difference in the premiums you pay every year is (notice the difference in the Insurance Cover you get)

Rs.27,266 – Rs.13,925 = Rs.13,341


If you start investing this money( Rs.13,341 ) every year in NSC, KVP, PPF(Fixed Return Instruments) you earn a compounded return at 8% per annum.

At the end of 25 years this would come to Rs. 10,53,330/-


If you start investing this money( Rs.13,341 ) every year in MFs/Stocks and conservatively assume a return at 12% per annum.
At the end of 25 years this would come to Rs.19,92,264/-

So in any case (Your Survival or Death), you or your family would be at benefit if you opt for a Pure Term Policy.