This question has been asked time and again. Today, we dive deep into the heart of this matter and unravel the mysteries of insurance as a form of investment.

The phrase “Investing in insurance” is an obvious first indication that Daal me kuch Kala Hai. This means we are mixing investment with risk mitigation.

Now let’s look at the variety of "Insurance Policies” being offered in India

1. We begin with the simple term Life insurance, a policy that many shy away from due to its stark reminder of our mortality. Yet, it is this very policy that offers a safety net for our loved ones when we are no longer there to provide. It is not about making money; it is about securing futures.


2. Then, we have guaranteed return plans like Endowment plans. These plans promise a guaranteed payout after a long term, say thirty-five years, while also providing an insurance cover in case of death. It's like having a security blanket that also bears gifts.


3. Pension plans are another form of insurance policies that allow for a lump-sum investment towards regular pension payments. It's like creating a personalized monthly allowance for your golden years.


4. Lastly, there are Unit Linked Insurance Plans, or ULIPs. These plans marry the concept of mutual fund style investment with an insurance cover. It's a cocktail of financial planning and risk mitigation.

Case study: Endowment policy vs FD & Term Insurance

Let's consider the guaranteed return plans.

If you have a 30-year-old investing ₹5000pm/ ₹60K a year in a typical endowment policy for say 35 years, you can expect a return of about ₹40 Lakhs at the age of 65. It looks perfect – Invest ₹21 Lakhs and get a pretty much assured return of ₹40 Lakhs. Unfortunately, that is wrong calculation.

Let’s assume that you invest ₹60K/year in an FD with an after-tax return of 5%, the return will be as per table below.

You end up making ₹16 lakhs more, if you have the discipline to invest in FDs which have very low risk every year. Adding a term life insurance policy for the same ₹40 lakhs will cost you as low as ₹10000 a year.

It's worth noting that under the new tax regime, there's no income tax deduction under sections 80C, which used to be a significant attraction towards insurance policies.

Pension plans, while beneficial, come into play at or after retirement and may not be relevant for everyone. The choice between ULIPs and mutual funds requires a detailed investigation, which we will tackle in our next discussion.

In summary, it's crucial to understand the intricacies of insurance policies and how they function as an investment. Choose simple financial products that can easily be understood and accessed over complex ones. Insurance is not just about risk mitigation. It is about smart financial planning and securing a stable future.