March 28, 2016

Is Insurance an investment

I remember my teacher telling the story of intelligence when i was in school.  “There was once a student who prepared only one essay for his exam ‘Cow’ but was surprised to see that the essay which he had to write in actual exam was ‘Tree’, thanks to his presence of mind  he wrote There was a big tree near my home and a cow was tied to it, The cow was brown in colour and it gives milk everyday and rest wrote about the essay he prepared 🙂‘, Intelligent isn’t it ?

If i got it right you are thinking what this story has to with title of the blog. I don’t know how many marks the paper checker would have given this intelligent kid, but if I was in teacher’s shoes I would have given him 1 mark on a scale of 10 for his time. Now compare this to the plight of earning individuals who need a ‘Cow’ to meet their long term objectives like retirement, children’s education etc. but are being sold ‘Tree’ with the pretext of ‘Cow’ happening on the way.

I had experienced another situation where a bank manager forced me to take a life insurance as he had sanctioned me an education loan. In other words “Give and Take”. Why should I pay a premium of Rs 25000 every year to get some benefits when I die?. I promised him that I will take the insurance once I get the Loan Amount Cheque. I was somewhat luck that time. There was a continuous 2 days bank strike and he had to give me the cheque on a strike day as I had to complete my admission process that day. He came to my shop after couple of days, But I beautifully broke the promise as the cheque was already en cashed. The bank manager was literally crying.

With so many ‘advertisements and distributors’ making you believe that you will get rich by putting money in ‘life insurance’ ones inclination can be understood, but sorry to say this has never been a purpose of life insurance and moreover no historic data suggests that some one got rich by putting money in insurance. The only use of getting an insurance cover is to make sure that all your current and future objectives related to your family are taken care when you are no longer there to support them. In other words You are dead and your family needs support. Some of the learning points is listed below

Insurance industry in India was opened to private players in 2000 with a cap of 26% on foreign partnership. The cap was further increased to 49% in 2015. A very interesting & consumer friendly clause was also added as a law under ‘Insurance Laws (Amendment) Bill, 2015’  that “no claim can be repudiated (rejected) after three years of the policy issuance under any circumstances[assuming premium payments are never delayed by the consumer]“. I think its also worth a mention that Insurance is a business and no company is doing it for a only social cause hence law allows insurance companies to appoint private investigators for investigating early claims [claims raised within 3 years of policy issuance or within 3 years of a delayed premium payment], obviously if there are lapses found in the data declared the claims can be rejected completely or partially.

So if you have plenty of money then go for an insurance it gives us some confidence or else the best investment is Equity and Mutual Funds.

The above view is my personal view. Insurance sellers may have another view.

Learning Points Courtesy – Dream to Achieve Blog

 


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