Article on How to chose a right Insurance (Insure or Invest)...!

There is a common myth that insurance is an investment tool. The background behind this myth is legacy insurance environment in India. This belief was an acceptable norm before liberalization of Indian economy. The insurance sector was opened up in India for private insurers in the beginning of 21st century. Initially, even the private insurers followed on the existing market practices where insurance was sold as an investment. Lot of changes took place in the product offerings and cost structures during the last decade but a lot is yet to happen.


Let us take the case of Unit Linked Insurance Plans commonly known as ULIPs or for that matter endowment insurance plans. Initially, ULIPs were sold to the gullible investors without they knowing about the pros and cons and cost structures. In some cases, even the false hopes of guaranteed returns were given which were totally baseless. I am really astonished that how a ULIP can be an investment option. The insurers used to deduct around 35% of the initial premium or more and the remaining amount was invested in various funds having stocks or debt or a combination thereof. Now, how an investor can expect any return when on the first day of investment, the sum of USD 100 is reduced to USD 65 (or Rs. 100 reduced to Rs. 65). The money has to be kept invested for next 5-6 years just to recoup the initial amount. In the later years, the best of the insurers were deducting around 5% of the premium paid every year. Even in this case, compare this with normal mutual fund schemes where entry load is NIL and even exit load is also NIL after some time. So ULIps will loose on this count also. Though the initial load has reduced substantialy in recent years but still it is around atleast 4-5%.

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