Wednesday, December 8, 2021

Confession Series - 2

 I am back, with yet another Confession !!

At the age of 21, I was a sold a Life Insurance Policy, with a sum insured of 5 lakhs,which my nominee would get in case I do not survive. But in case, I survive for another 25 years, I would get approximately Rs 18 lakhs. The premium for this policy was Rs 24520 p.a., to be paid for 16 years. So basically I was sold an 'Endowment' policy which clubs insurance and investment.
If I calculate the return % for the above it comes to approx 9%.
Now there is one big mistake I did here, I mixed Insurance and Investment together, wherein neither the insurance amount of 5 lakhs would be sufficient for my family to support their expenses in my absence, nor a return of 9% is a good enough return if I am waiting for 25 years.
Alternatively I should have done this, considering I am still shelling out Rs 24520 p.a.
1) Buy a *Term Insurance for Rs 1 Crore* which would have costed me approx Rs 7500 p.a.
2) Invest the remaining amount 24520-7500 = 17020 divided into 12 months which is approx Rs 1420 p.m, into Equity Mutual Funds every year for 16 years and withdraw the matured amount on completion of the 25th year. The matured amount would be approx Rs 21 lakhs.
The numbers say it all !!
Hope I have rung a bell 🔔
Please share this with people you care for, especially the Young Population (18-25 Yrs).
Happy Investing !!


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