Insurance industry is known for the policies which cover just the life and the other assets without any return while the other set of insurance policies are those which are called the Unit linked plans or those which are used as an investment option and are popularly known as the endowment plan.
Most often one would wonder as to the premiums you are paying towards the policies should offer some return on the money outlay towards the same. Endowment policies are aimed towards offering return on the investments you make along with the life policy coverage.
Endowment Policy – Different facets
Insurance policies which offer returns on the premiums you pay, are often designed in a way that the insured gets the survival benefits , bonuses and also payments on a regular basis. The returns that you get will depend on the kind of policies you take and terms that are defined under the policy. There are some policies wherein the bonuses are accumulated continuously and are payable only at the maturity of the policies. There are some which offer the entire money to the insured on their death and is payable to the beneficiaries as the death payment.
Everything looks a lot attractive and you need to be check on the different aspects.
High Annual Premium: If you take the insurance policy as form of investment and expect some kind of return on the same which is more related to the fixed amount at the maturity, you will naturally have to part with a higher premium amount earlier.
Unpredictable Bonuses: The performance of the market decides the kind of returns you will receive in the form of bonuses. This means that unless you are offered guaranteed returns on the policies you cannot be sure of the kind of bonuses you can receive on the policies.
Low Returns: If you looking for some great returns on the maturity of your policies, when you have used them as an investment option, there are little chances that the returns and the percentage figures of the same are anyways going to impress you.
Scope for Improvement
Better Interest Rates: Whenever you are taking an insurance policy with an investment perspective you will find that there are different returns and the interest rates along with the different payment plans which are applicable on them. Where some insurance companies offer the bonuses at fixed intervals as discussed and agreed upon, there are others which accumulate the bonuses for payments at the end of maturity. In all the cases one needs to work out on the returns they receive which are really low in the current times.
Higher Returns: Life insurance companies invest the premium amount taken from the insured in the investment options further. There are different schemes under which the investments are made and where the investments are made in the government bonds the returns are really limited. However, this might be appropriate for those who are looking for safe pastures for their money and do not want their investments to go down even if they are able to get only low returns on them.
Smarter Investments: If you are in the early years of your life, have the risk appetite and resources it is always advisable to use insurance for the life coverage only and not as an investment option. There are several investment tools available which can offer you much higher returns than you will get under the insurance.
Liquidity of funds is yet another challenge when one looks at the insurance as an investment option. The time frame for the investments in the insurance is really long and unless you have some redundant money or looking for the tax benefits there is little sense into using insurance as an investment option.
What can you save on?
If you just take the coverage required or focus on the insurance part leaving aside the investment portion on the insurance policies, you can save a lot on the premiums and this will offer you ample opportunity to get invested in the options which can earn you really high earnings.