Do you really understand LIC policy

lic good or bad

LIfe Insurance Policy(LIC)

There are two aspects of buying LIC policies. 1st is general insurance and second is term insurance.

General insurance is when you get some returns at the maturity of the policy.

And in term insurance, you don’t get anything at maturity but the policy amount will be relatively very less than general policies.


Advantages of Investing in Life Insurance:

1. Providing Security

Life insurance is the only financial tool that provides guaranteed funds from the day of issuance. In the sense, in case of an unfortunate eventuality where the policyholder dies within the period of the policy purchase, the life insurance company is liable to pay the guaranteed life cover to the nominee.

For example, Mahesh purchases a life insurance policy with a sum assured of Rs.10 lakh. And within six months of purchase, he dies due to the accident. The life insurance company will pay the death benefit (sum assured), of Rs.10 lakh to the nominee.

After all, that should be the sole purpose of this investment to support when needed.

2. Opt For a Bank Loan

Yes, you read it right. You can opt for a loan against the life insurance policy.

Whole Life plans are  to cover the life assurance for the lifetime. Because of which one can take a loan on the withdrawal amount of the whole life plan. Moreover, one can also opt a loan against the Surrender Value. The Surrender Value increases over time and it is a better option than mortgaging home against the loan.

So this way:

  • You stay covered throughout the life
  •  And you get returns on your investment
  • Also you can opt for a loan to meet your current demands

There are also other life insurance plans like an endowment, money back, etc. that offer loan facility.

3. Meet Your Short-term and Long-term Financial Goals

Short-term goals: With Money Back plans, you can plan your short-term financial goals. Money Back plans offers regular payouts.At various life stages, you can be sure of receiving assured funds.

Long-term goals: Meet your long-term goals like planning your child’s education with a Child plan. Furthermore, plan your retirement with a Retirement plan or a Whole Life plan. With ULIP and a traditional Endowment plan, you can look forward to wealth creation to meet your 15 to 20 year down the line financial goals.

4. Your Business Has a Chance of Sustaining

With a Term plan, business owners can ensure that the family is financially secured in case of an untimely death of the life assured.

All life insurance company offers a Keyman policy. Keyman policy is a life insurance to cover the key person working in the company.

With Keyman insurance policies, you are protecting your business from getting a financial blow. Business may get affected financially without you being around to run the business or any key person. That said, it is essential to cover all the key people working in the organization under the Keyman policy.

5. Tax Benefits

All the premiums paid towards any type of life insurance policy are tax exempted. The premiums paid for life insurance can be claimed for tax exemption under Section 80C of Income Tax Act, 1961.

6. Mental Peace

All the above benefits give peace to the mind. Because, you know, your family is financially secure, in case of unfortunate eventualities. And you also know, with different types of life insurance you can meet all your financial goals at different life stages.

Your family members are also at peace knowing that they don’t have to worry about finances to fulfil their bucket list and continue living life.

Benefits of Investing in Life Insurance

  • Provides financial security
  • You can opt for a bank loan
  • You can plan strategically to meet your short-term and long-term financial goals
  • Business owners have a chance of growing their business even in their absence
  • Offers tax benefits
  • Assures mental peace

Notion of implied govt guarantee:People in India tend to believe that LIC has an implied govt guarantee. Most Indians looking for safety of their money, think LIC is the best for them. It is like saying that your money is safer in SBI & not in private banks !! Really ? So the safety seekers are more likely to invest in LIC, even though the returns are very average in most LIC endowment based plans. If you are happy with 4% odd kind of returns, all the best to you.

Indian custom to buy LIC, passed through generations:LIC has the most entrenched network of advisers & its a legacy of 50 plus years. It has become customary to buy LIC, atleast your dad is bound to recommend you the same once you start your first job. However the fact is that the times when 4% returns from LIC were good(1950s to 1980s) are long gone. With inflation running 9% for a decade, LIC plans have been a big value destroyer for most. Unfortunately, it takes 2 decades for you to realize that you have lost money on LIC investment. So most people don’t even understand the 4% returns I am talking about from lic

The great Indian social obligation:The LIC agent is mostly a known social person from the same locality. It becomes almost obligatory to buy policy from agents, even if you know that you don’t understand the investment. Also what is the adviser’s interest in pushing the plans ? Of course, LIC is one of the best in commission payouts largely because of the nature of the policies sold(endowment plans). Whats worse, there is no accountability on returns since most plans work on 20 plus years tenure. So you can’t even confront agent like you can in case of ULIP/market linked plans. You tend to feel that your investment are good & guaranteed !!

The same old (mis) selling pitch: Most importantly, majority (tempted to say all) LIC agents almost have a similar pitch. They almost never talk to you about “annualized returns”. The pitch is “your money grows 4 times in 20 yrs…..6 times in 30 yrs, etc”. Most people can’t calculate what the annual % returns are. Fact is most returns are 3.5% to 5% max. But it is never stated clearly on paper & the agent gets away by quoting “additional bonus” & other stuff. No clear track record of past annual returns % ( considering all bonuses) is disclosed by LIC.

The smart financial buyer (at-least this is what he thinks):Finally, the Indian buyer thinks that he is being smart by taking a small percentage of the commission from the agent. What he certainly doesn’t realize is that the “cut” he takes in first year is just a small fraction of the money that the agent & LIC will make year on year.

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