Tuesday, November 21, 2006

Good thought on Insurance by one of my reader

One of my reader, Ranganathan mailed me his thoughts. We both are classmates/hostelites. We have shared a many thoughts and this is one among them. I was planning to write related to insurace and the likes of it. Good that you brought this up Ranga, I would have never explained the same thing as lucidly as you have done!! I would like to invite you to contribute articles on this blog.


I bought outlook money yesterday. There, my Dad found one v.nice info, as below: (it is very much the same as you say!!) Its regarding life-insurance. For an endowment plan, premium is Rs 5000 per lakh of SA. So, for 10L, its 50000INR. And, we pay this for 20 years, & at the end of the tenure we get the double SA, that's 20L.

Instead, if we take term insurance(no returns, pure insurance only), the premium is Rs2500 for 10L cover. Now, we invest the difference (50000 - 2500 = 47500) in PPF, which gives 8% pa, with same safety as the previous plan. So, we get the same cover now, & the returns is almost double (47500 per year * 20 yrs @ 8% pa, calculate it yrslf). Thats Rs 23,56,198 (Use this calculator Recurring Deposits Instalment Monthly Calculator)

My dad & I were totally dumbstruck at this. But the article where this data was printed didnt tell much abt the advtg there. And, there is one more merit here: If we are unable to pay the premium even for one year, the policy is closed. & that's 50K for the former. In case of latter, that's just 2.5k, & we need just 500Rs to keep the ppf account alive. So, that's a manageable amt of 3k, in case of tight-finances.

& We get the same tax-cover also. All we need is a v.v.v.little more discipline, to invest in 2 diff places.

My dad has one great idea also: start a 12month RD in a bank to match with the LIP dates. So, we don't feel the hit of 50k outgo at one shot. & we get a 'little' interest also to enjoy!! (That 10L cover is only for example.)

And, do you have any tool / formula to calculate this: amt X per year for N years @ R%, then what's the interest gained? [RupeeManager] visit Recurring Deposits Instalment Monthly Calculator, this one gives a graphic view Savings Calculator



p.s: If any of my reader is interested in sharing and publishing their thoughts/ideas/novelties, please mail at RupeeManager [at] Gmail [dot] com
machee: Its a tamil slang for dude.


Prasanth said...

Taking a term insurance and then investing the diff in either mutual funds (if you are Ok with the risk ) or in PPF (if you are risk averse) is the way to go. I keep preaching this to all and sundry in my office.



Raj Gopal Vuppala said...

Investing in "Term + PPF" is any day better than taking a traditional endowment plan from any company.


MWresearcher said...

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