Are You Over-Investing in Your Insurance?

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ULIP Plans
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Are You Over-Investing in Your Insurance?
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• There are some people who are looking for the
  cheapest life insurance policy to fulfill their
  protection need. However, at the same time, there
  are people who like to invest the maximum fund in
  the insurance schemes.
• When posed with the question why, they simply
  reply more investment means more returns. The
  question here is- is it prudent enough to invest
  out-of-the-limit in insurance schemes, even if
  these schemes belong to unit-linked category? The
  simple answer is no.
• Insurance is not an investment tool exactly
• The core purpose of having any insurance is to
  have protection against contingencies. To offer
  the financial protection, insurance companies are
  charging some amount out of the premium as fee
  and the rest of the amount is utilized for
  creating the pool of funds to protect those in
  need.

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• To do this, insurers have various kinds of
  propositions so that every person interested in
  insuring himself is able to find a plan that
  suits his financial state.
• Initially, ULIP Plans were largely traditional in
  nature that offered guaranteed minimum returns
  over a period. Many people did not find this idea
  of insurance lucrative enough and preferred other
  investment tools to earn comparatively higher
  profit. So the insurers came up with ULIPs that
  is unit-linked insurance plans, to be able to
  give better returns or market-linked returns to
  customers.
• The basic fundamental of providing protection
  remained the same.
• Take inflation into consideration to understand
  whether it is right to over-spend

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• To better understand the concept, take inflation
  into consideration and calculate the financial
  returns you would get over the period. Would the
  returns received be considerable enough to
  fulfill at least some of your needs? No. You find
  that you would basically be using your own funds
  that get added to the small percentage of profit
  your investments are able to accumulate over a
  period of time. Saying that does not imply that
  insurance is of no use.
• It is just that the system of insurance works to
  provide you much-needed, timely protection that
  you would not be able to avail by yourself. So,
  it always makes sense to have insurance, but one
  should not over-spend on it to have huge returns.

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• By using the above methods you get rough
  estimates about how much sum insured you should
  have. If one of these estimates matches with the
  collective sum insured of all your life insurance
  policies with a difference of even a few
  thousands of rupees, you are on the right track.
• However, if the collective amount of the sum
  insured of your policies is much more than these
  estimates, you need to look into the matter.
• Neither it pays to be underinsured nor does it
  pay to be over-insured. Assuming an insurance
  Ulip Plans as an investment plan is fine to a
  certain extent as it offers tax benefits and
  keeps your financial goals in place but
  allocating maximum funds there is not a wise
  decision.
• By investing more than what is required you are
  converting your investment into expenditure. To
  extract maximum value out of your money, invest
  in insurance only what is required and the
  difference can be used somewhere else to maximize
  the returns.

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