Saturday, April 16, 2016

Do not mix Insurance with Investment

 

THE CARDINAL rule is not to mix insurance with investment.

 

Yet, millions of traditional insurance policies that give the "triple benefits" of life insurance, long-term savings and tax benefits are bought every year. These policies not only give sub-optimal returns of 5-6%, but also force the policyholder into a multi-year commitment.

Is there a way out? Yes, you can surrender a policy if you have paid premiums for a minimum number of years. Be ready to suffer a loss when you do this.

You can also convert an insurance policy into a paid-up plan after three years. The policy will continue with a reduced sum assured but you won't have to pay the premiums any further. The paid-up value is given to the policyholder on maturity. The policy turns into a paid-up plan if premiums are not paid for two consecutive years.

 

This is an option you can explore. It is better than paying premiums for the full term and earning 5-6% returns.

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