Insurance Policies are not Investments
People are still having confusions related to insurance policies and its terms. Insurance policies are only for financial rescue when one’s income is stopped; to help them and to their family dependents in finance related needs. But unfortunately, most of us are still in the thought of insurance as an investment. Due to this consideration they are taking too many policies.
Rather than one taking too many policies the most important thing to be taken in to view is what for he or she is taking the insurance and what is the coverage that they’re going to be benefitted with. For this, we have to change our view on insurance policies and understand them clearly. Only then we can come out of confusions.
Your Economic Value
Before entering into insurance, we need to analyze and clarify our wealth that is – “economic value”. Our income, our dependents, their needs, our asset value, how much can we manage to pay premium, etc must have to be taken into consideration, which is most important.
Normally, it is advisable to take a coverage plan of 15 to 20 times higher than your annual income. At the same time, when you are new to a job it would be sensible to make your insurance coverage amount from 3 to 4 times higher than your annual income.
The Insurance policies those have money returns upon maturity will definitely have high premium. But accordingly, will the maturity amount be profitable? In most cases, the answer is “No”. On these types of policies, only 5 to 6% of profit can be expected. This income is must lower than what a post office savings can give you.
In general, the motto of taking an insurance policy is to get the maximum returns out of it. It is good to go for term insurance schemes where it gives the opportunity to get maximum
returns on low premium. It is also good to calculate about 5% of your annual income to be paid for the premium of your term insurance policy. Many are putting their money in an investment thought on endowment and ULIP policies and keep waited receiving a much less income.
Others get tangled in sentiments and take insurance on their children’s name or taking out policies from children’s names which is also a mistake. Whoever is the earning member in the family, the insurance policy has to be on their name. Instead of these policies, you can take a term plan and the rest can be invested in P.F. P.P.F, fixed deposits, mutual funds etc. with which you can see additional profits and these are undoubtfully wise investment options too. You can also fulfill your needs.
A few others are going for pensions policies of insurance companies. Even these are existing as less income providing options. Instead of this, you can invest in top equity diversified funds.
How many policies?
No one has the restriction as to how many policies they can have. However, based on their “economic value”, one can even have just one insurance policy. Or otherwise once in three to five years time, based on the salary hike, taking loan and upon other responsibilities you can increase the policy coverage amount.
Insurance is a shield to cover our family, financially. Investment is a tool to generate profits. When this basic difference comes to your understanding, you can take a term plan based on the requirements and the rest can be invested in various investments schemes and see excellent benefits.
Let us leave the one who has already taken so many insurance policies. Anyone who is entering into a insurance policy and wish to know genuinely how many insurance policies one can have. this article would be an eye-opener not to do the mistake of taking too many life insurance policies.