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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.