This article in continuation to my previous article on "Analysis of LIC - Jeevan Varsha - Part 1".
Pls go ahead and first read article "Analysis of LIC - Jeevan Varsha - Part 1" and then only read this article to get the better idea of what I want to explain.
Recap of Analysis of LIC - Jeevan Varsha - Part 1:
We discussed about LIC policy - Jeevan Aastha.
Premium Amount is Rs 78,000 per year.
Need to pay this premium for 9 years.
Policy term is 12 years.
Sum Assured - 5 Lacs
Survival Benefit :
Then we have done calculation and found that the CAGR returns comes to 6.4 % in second case when we inteligently reinvested amount got at the regular intervals from this policy.
------------------------------------------------------------------------------------------------------
Basic Thought
If a person can pay a premium of Rs 78,000 per year, then do you think the Sum Assured of 5 Lacs is sufficint to him? Not at all.
As per my guess his/her salary has to be minimum 5 Lacs per annum.
He is totally Under Insured. As already discussed we will not be such uncaring in deciding the right policy for him and will not under-insure him at any cost.
We understand importance of Insurance and his Family needs and the tenure of cover should be 25-30 yrs , not just 12 yrs , His Insurance requirement is around 30-40 lacs and we will provide it anyhow , even if the investments are to be compromised.
So we will try to provide him 35 lacs cover for 30 yrs.
I think this is sufficcient !!! whats do you say ?
So a person who pays 78,500 per year, can divide his 78,500 yearly payment into two parts, For insurance and Investment separately . You know what i would suggest, its Simple Term Insurance and Investment in PPF or MF's.
Both the cases have got tax benifit as per 80C.
For Defensive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
So he is left with 68,900 (78,500 - 9,600), for his investments . If he invests this in PPF (though there is limit of 70,000 , lets assume he can do it) . he will get around 14.12 lacs (annuity formula) at the end of 12th year.
He can then take out 1.73 lacs out of this to fund for his Insurance premium for next 18 yrs left, still the amount left would be better than the Jeevan Varsha . The other alternative is to keep the money in some Fixed Deposit and keep using the interest amount to fund Insurance premium for next 18 yrs. There can be other ways of doing it, but the main point is that we have done better than Jeevan Varsha in all respects - Sum assured, Years of Insurance and Returns from Investment.
This investor can also use Balanced Mutual Funds or Debt Mutual Funds for investments.
For Aggressive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
He can invest 68,900 yearly (5741 per month) left in Equity Diversified Mutual funds using SIP every month in max 3-4 mutual funds.
He should expect to get around 12% compounded returns over 12 yrs, and your money should grow to 18.5 lacs (Disclamer: 12% is again not guaranteed)
Summary and Notes
We have seen the policy from a broad level and see its main components, we have not seen minutescale details, because they are not significant enough to change the views anyways.
I just want to prove that the endowmenent policy in this case Jeevan Aastha is too complicated to understand and also gives very less returns compared to other investments.
Even the PPF investments are better than this.
Conclusion
Term Insurance + (MF or PPF) is a great combination , its simple easy to understand .The main point is to first Insurance your self sufficiently and then think about investments .
Get the insurance cover for atleast 6-8 times of your current salary even better to take 10 times (Approx Sum Assured should be 30-40 Lacs). Then only think about investments.
And when every you think, think about what is simple and easy to understand.
Always follow KISS policy (Keep It Simple Stupid).
Pls go ahead and first read article "Analysis of LIC - Jeevan Varsha - Part 1" and then only read this article to get the better idea of what I want to explain.
Recap of Analysis of LIC - Jeevan Varsha - Part 1:
We discussed about LIC policy - Jeevan Aastha.
Premium Amount is Rs 78,000 per year.
Need to pay this premium for 9 years.
Policy term is 12 years.
Sum Assured - 5 Lacs
Survival Benefit :
- 9.2 Lacs (Simple way)
- 11.75 Lacs (Amount got at every quarter reinvested in PPF)
Then we have done calculation and found that the CAGR returns comes to 6.4 % in second case when we inteligently reinvested amount got at the regular intervals from this policy.
------------------------------
Basic Thought
If a person can pay a premium of Rs 78,000 per year, then do you think the Sum Assured of 5 Lacs is sufficint to him? Not at all.
As per my guess his/her salary has to be minimum 5 Lacs per annum.
He is totally Under Insured. As already discussed we will not be such uncaring in deciding the right policy for him and will not under-insure him at any cost.
We understand importance of Insurance and his Family needs and the tenure of cover should be 25-30 yrs , not just 12 yrs , His Insurance requirement is around 30-40 lacs and we will provide it anyhow , even if the investments are to be compromised.
So we will try to provide him 35 lacs cover for 30 yrs.
I think this is sufficcient !!! whats do you say ?
So a person who pays 78,500 per year, can divide his 78,500 yearly payment into two parts, For insurance and Investment separately . You know what i would suggest, its Simple Term Insurance and Investment in PPF or MF's.
Both the cases have got tax benifit as per 80C.
For Defensive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
So he is left with 68,900 (78,500 - 9,600), for his investments . If he invests this in PPF (though there is limit of 70,000 , lets assume he can do it) . he will get around 14.12 lacs (annuity formula) at the end of 12th year.
He can then take out 1.73 lacs out of this to fund for his Insurance premium for next 18 yrs left, still the amount left would be better than the Jeevan Varsha . The other alternative is to keep the money in some Fixed Deposit and keep using the interest amount to fund Insurance premium for next 18 yrs. There can be other ways of doing it, but the main point is that we have done better than Jeevan Varsha in all respects - Sum assured, Years of Insurance and Returns from Investment.
This investor can also use Balanced Mutual Funds or Debt Mutual Funds for investments.
For Aggressive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
He can invest 68,900 yearly (5741 per month) left in Equity Diversified Mutual funds using SIP every month in max 3-4 mutual funds.
He should expect to get around 12% compounded returns over 12 yrs, and your money should grow to 18.5 lacs (Disclamer: 12% is again not guaranteed)
Summary and Notes
We have seen the policy from a broad level and see its main components, we have not seen minutescale details, because they are not significant enough to change the views anyways.
I just want to prove that the endowmenent policy in this case Jeevan Aastha is too complicated to understand and also gives very less returns compared to other investments.
Even the PPF investments are better than this.
Conclusion
Term Insurance + (MF or PPF) is a great combination , its simple easy to understand .The main point is to first Insurance your self sufficiently and then think about investments .
Get the insurance cover for atleast 6-8 times of your current salary even better to take 10 times (Approx Sum Assured should be 30-40 Lacs). Then only think about investments.
And when every you think, think about what is simple and easy to understand.
Always follow KISS policy (Keep It Simple Stupid).
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