Insurance Products

In this article we are starting with money back or cash back plans from insurance companies. This one is a hit with insurance customers. And insurance advisors know it. They know the line that you will start getting money from the fifth year and then at the end of every five years win them over. For lay persons, getting money at regular intervals rather getting it when the policy matures has great appeal. But what they don’t see is the extra premium they are paying for it.

Money back plans are one of the expensive insurance products. However, customers don’t seem to mind paying the extra premium. But the real problem is that most people remain under-insured because of the higher cost.

Purely from the insurance angle, they should buy an adequate insurance cover with a term plan and then look at insurance-cum-investment products like money back and unit linked insurance plans.

So, in case you are considering buying a money back plan, think again. First, find out the replacement value.

Do some calculation to find out how much your family consumes from your income. Then calculate what amount you would require to be invested in a fixed deposit to earn that much money. Now, ask your agent to get you a term plan (insurance plan with pure risk cover) equivalent to that amount.

Now, if you have anything left in your 80 C that is insurance premium along with employee’s provident fund contribution must have claimed most of the Rs 1 lakh deduction permitted then you can go ahead and buy any insurance-cum-investment product of your choice.

One should always remember that from an investment point of view, insurance products often fail to impress with their returns. The conventional insurance products adopt a very conservative investment approach and offer modest returns.

ULIPs are the only exception since they offer different investment options. Therefore it is advisable to people to separate insurance from investment and opt for a pure investment product like a mutual fund.