Lame Finance: How Does Combining Insurance and Investment Benefit You?

by Vinaya HS on June 14, 2008

in Finance

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It’s understandable to have an insurance cover for a liability. For example: It makes perfect sense to have an insurance cover for your home loan. If you were to get into an unfortunate situation where you wouldn’t be able to repay the loan, the insurance company picks up the tab. The premium you pay for the insurance cover is worth the freedom you get from having to incessantly worry.

But I’ve never understood the concept behind insurance companies combining insurance and investment and then marketing that fact as being beneficial to you. It certainly is beneficial, albeit to the insurance company.

On one hand, you have Unit Linked Insurance Policies (ULIPs) which charge astronomical fees under complex fee structures, gamble with your money in the equity market, and scare the shit out of you. Isn’t “freedom from worry” the whole point in having insurance? With a ULIP, you’re always worried about what’s happening to your money.

On the other hand, you now have mutual funds which give you an insurance cover of up to (a classic marketing phrase) 100 times the money you handover monthly into a Systematic Investment Plan (SIP). I don’t understand why you should put money in a mutual fund to get life insurance? In this case, the mutual fund and insurance company operate under the same banner. So, where is the premium for these policies coming from? The mutual fund’s annual management expenses? I’d run away if I were to be offered this scheme. Finally, all that you need to do to get insurance is sign a “Declaration of Good Health,” which I am sure is as vaguely worded as possible to your disadvantage.

What do you think?

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 3 comments… read them below or add one }

Nidhi July 1, 2008 at 7:38 PM


I came to your blog searching for PPF account, and to be honest I really got lot of clarity and I think I will open a PPF account. Just to let you know, SBI has now made it compulsory to open an account with them to open a PPF account!!

I am 25 years of age but till date have made no investment, barring the hysteric investment I made in tax saving MF last year on the constant persuasion of my friends,in the last 3 years that I have been working. And this is due to the confusion I have on the products in market.

Last year I met around 3 representatives from various banks for ULIP but I was still not convinced whihc is the best, BTW just to ensure I do not repeat my mistakes of last couple of years I met ICICI representative even today. Still not sure :-(

Either I am toooo indecisive or the time has yet not come for me to invest..I am not sure.


Vinaya HS July 1, 2008 at 11:04 PM

I have always wondered why, in India, we invest in all the wrong financial instruments at the very last minute in order to save a few thousands in income tax? - Financial Planning Demystified October 31, 2008 at 8:02 PM


Couldn’t agree more!

Insurance and investment are two totally different things, and therefore, should be pursued separately. Thus, both ULIPs and SIPs with insurance should be avoided.

If you want insurance and investment, buy term policies and invest in MFs – that way, you would be able to invest in an MF of your choice instead of beling limited to the 4-5 options that a ULIP provider gives you.

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