Investment Plans 687 views December 14, 2021

What if you get life cover and investment benefits with one product? This is what life insurance cum investment plans do to win the confidence of many seeking the same. The life cover ensures your dependents won’t have to worry financially in case you die and leave them with only memories. Besides, the investment component helps you make money through such plans. Sounds interesting to delve deeper into the 3Ws – What, Why and When – of these investment plans! Let’s spare time to do so in this post.

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Let’s Check the ‘What’ of Life Insurance Cum Investment Plans First

As stated earlier, insurance cum investment plans ensure protection in case of an untoward incident and add money for you over the policy term you choose at inception. Policy terms can range from 5-25 years depending on the terms and conditions laid down by the insurance company.

In exchange for the benefits, you need to pay the premium to the insurer at regular intervals. Now, you could pay the premium throughout the policy term, less than that, or only once. The premium amount may differ across these premium payment terms, but the benefits would remain the same for the policy you choose.

You need to pay the least premium amount when choosing to do so throughout the policy term. In case you choose to pay for less than the policy term, the premium amount will be more. It will be one massive lump sum if you wish to pay only once during the policy term.

These plans are broadly categorized into

  • Unit-linked Insurance Plans
  • Endowment Plans
  • Money Back Plans
  • Annuity Plans

What’s Special About Unit-linked Insurance Plans?

These plans keep a part of the premium reserved for life insurance cover in case of any untoward incident while utilizing the other one to earn you returns. Unit-linked Insurance Plans (ULIPs) come with a list of funds – equity, debt and hybrid – from which you can make your choice. While equity funds would invest in stocks that can earn you way more despite greater investment risks involved in the same, debt funds offer conservative returns by investing in debt instruments such as bonds, debentures, etc. Whereas hybrid funds invest in both stocks and bonds to generate more than debt funds. At maturity, you will get the prevailing fund value.

Who Should Keep Endowment Plans in Their Investment Mix?

Endowment plans suit the ones seeking a regular flow of income by investing in a myriad of financial instruments. The guaranteed income promised under these plans wins over the confidence of many investors. In the case of a participating endowment plan, you could earn even bonuses. You can identify such a plan when reading its brochure online.

A Brief on Money Back Plans

As the name suggests, these plans return you the money you pay to the insurance company. However, such a facility is subject to your survival, and comes to you at regular intervals. Besides, most money back plans come with a bonus feature.

How do Annuity Plans Help Retirees?

These are retirement plans wherein you receive the annuity immediately or after you attain the vesting age as specified in the policy. The annuity payouts will depend on the rates offered, as well as whether the plan offers fixed or variable annuity. A fixed annuity will come with lower payout rates but without any market fluctuations, whereas a variable annuity can lead to more payments albeit at greater investment risks.

Why Should You Invest in Life Insurance Cum Investment Plans?

Life insurance cum investment plans have remained the favourites for many investors for reasons more than one. Take a look at such reasons.

Investment Plans Create an Additional Source of Earnings for You

Having additional sources of earnings besides the usual salary only comes in handy to meet additional expenses that you may incur later. For instance, the money invested in ULIPs goes into stocks too provided you choose equity funds from the list. Stock investments can raise the corpus beyond imagination despite greater risks involved in the same.

All it needs is a proper selection of stocks based on the operational efficiency of the companies issuing the same. However, choosing such stocks may not be that easy as it may sound. One needs to read technical graphs & charts as well as understand various market trends to choose the right stocks. Sounds very technical to someone being a commoner! Considering the same, ULIP fund managers do this critical task for you. However, the investment risk will be yours only; the managers will try to negate the effect of risks affecting your investments to the minimum extent possible.

If we look at the 1-year return of ULIPs, most have delivered above 20% which is a very good number to post. Long-term ULIP investments with an extended bull run will only help you increase your wealth exponentially and meet inflationary demands comfortably.

Safe Returns Also Available to Go in Sync with Conservative Investors

Risk appetite is an important factor to consider when choosing life insurance cum investment plans. It can be high, low or even medium amongst individuals. For individuals with a high-risk appetite, ULIP remains the best option. Those having a low-risk appetite can get safe returns by investing in endowment plans where the insurance company takes care of investment risks.

Flexible Policy & Premium Payment Terms Draw More Investors

Life insurance cum investment plans come with numerous policy and premium payment terms from which you need to choose. Policy terms can range from 5 to 25 years, while premium payment terms can be regular, limited or even single. As stated earlier, a regular premium payment term will continue till the policy term. Whereas a limited premium plan will have premium payments for less than the chosen policy term. So, depending on your comfort and the time needed to generate the desired corpus, you can choose the right variables. Investment calculators can further help you do so.

Withdrawal Facility Available to Meet Liquidity Needs

Given the possibility of financial emergencies, you need to invest in a product that gives you the liberty to withdraw money during the investment period. Thankfully, life insurance cum investment plans allow you the same to meet your financial needs at such times. While ULIPs allow withdrawals after 5 years, endowment plans permit you the same after they acquire a surrender value. An endowment insurance plan acquires a surrender value after a spotless premium payment record for two-three years.

When Should You Put Money in Life Insurance Cum Investment Plans?

You can have these plans as soon as you attain 18 years of age and as late as 50-60 years of age. But putting money in these plans immediately after beginning your professional life is advisable. It will ensure enough time to build corpus as well as help recover lost grounds in case investments do go through lean phases in between. For instance, if you start investing INR 5,000 monthly in the ULIP plan and after getting the job in your 25th year, you will have around INR 50 lakh after 20 years, assuming the annual rate of return remains 12%. The total investment over 20 years would amount to INR 12 lakh, leading to thrice the gain on the invested capital (50-12=38 lakh).

Guess what, you will have another 15 years to make it even bigger before you quit working courtesy retirement @60. So, the sooner you wake up to equity investments via ULIPs, the more you could generate.

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