At the time of buying a policy, the majority of customers prefer attractive offers instead of focusing on their needs. Some of the life insurance plans that give very low returns on the investment.
Industry experts calculated and found that if the investor of say 35-year old female purchases life insurance coverage online of Rs 25 lac and invest the remaining balance in the PPF, then the investor would have a corpus of nearly Rs 25 lac in around 20 years.
But, there is no guarantee that the PPF investment will continue to offer 8.75 percent return for the next 20 years. In the past few months, the benchmark government bonds yields have drastically decreased by around 50 basis points and insurance advisors believe them to reduce nearly 8 percent in the coming months.
The returns provided by small saving instruments such as NSCs and PPF are related to the yields of government bonds of the similar maturity period. On the other side, the non-participating endowment policies from insurance companies in India give assured payouts.
Various such policies have been introduced this year after the Insurance Regulatory and Development Authority i.e. IRDA launched sweeping modification in traditional schemes in the month of January. Many people prefer assured returns when it comes to investment.
As per the data of Reserve Bank of India, fixed deposits account for nearly 56 percent of the total financial assets of Indian households, while mutual funds and stocks make up around 5.2 percent.
Participating endowment policies are available in a variable component in the form of terminal or annual bonuses, range from 4 to 6 percent based on how the investment is done by the insurer and its performance. Non-participating plans have no variable component and hence, the whole maturity benefit is announced upfront.
Under such plans, the whole amount will be available on maturity and the death benefit is also guaranteed. This is the most attractive feature for those investors who are looking for certainty. Financial planners buy products which have benefits of investment and insurance.
Any plan which provides guaranteed returns will have to implement a traditional investment method. The returns of some non-participating endowment policies are lower as compared to those from a savings bank deposits.