Insurance continues to disappoint.
Every comment or email that I receive reflects the disillusionment with investment based insurance products, more specifically with “Pension Plans”.
The customer now wants to surrender these plans. Some are not happy with the returns, others don’t see the fit with their goals.
I wonder how millions of people were taken for a ride.
The answer is easy. Here’s a piece that you should read to know why? Insurance: All that is wrong with it and you!
The Pension Plan reality
In reality the pension plans are – “wolf in sheep’s clothing”.
When you buy a pension plan, you buy the promise of a life long income post retirement. What you don’t understand is what will be the size of the pension / income and what will be the tax implications.
Read this detailed note to understand better – Pension Plans: Wolf in sheep’s clothing?
The Real Risk with Insurance
At the Pune “Money and You” workshop, for over half the time, the discussion was on the real risk in investment strategy.
Now, as an investor, you are looking for safe, secure, tax-free returns. What you forget in this search is the real risk you face with your investment strategy – not being able to achieve your goals.
A rate of return that does not help you reach your goals is no good for you. It becomes worse when you continue to lose the purchasing power of your money – your investments earn less than the inflation rate.
Try this Acid Test of your investment portfolio and know what is your overall portfolio doing for you.
Beware of Banks
The biggest loot in the name of insurance is done by banks – especially the private ones.
Today even the bank teller / cashier comes across to ask, “Sir, we have a very good product for you. Would you like to invest? ”
In the past, the implicit trust with the bank drove customers to fall into the trap of buying bad and unnecessary products.
The investors are regretting it today. They are actively asking around how to get out of the trap, that is, surrender their insurance cum investment policies and put the money to better use.
Surrender Value Taxation – Must know insurance facts
Make sure you don’t fall for it now.
The right things to do in Insurance
Insurance at its core is about protection against risks. These risks include that of death, medical expenses, and disability. Each of them can have a severe financial toll on you or your dependents.
Here’s an overview of what you should do to tackle each of these risks:
- Death: How will your dependents take care of themselves in case something happens to you? Life insurance comes into picture here. Use these 2 methods to calculate how much life insurance cover do you need.
- Medical expenses: How will you provide for hospitalisation or medical treatment that needs a large sum of money? Here is what you should look for in a medical policy. See also a comparison of 4 medical insurance policies.
- Disability: What if you are unable to work because of an accident? Where will the income come from? Here’s Rohit’s story.
Final word: Stay away from insurance based investment in any form. It is an investment mirage.
Excellent article !
Thank you!