Paul Krugman dismissed the Pareto principle as being cited "not because it's true, but because it's comforting". Nevertheless, "20% of your income should go towards savings" is the thumb rule followed for decades.
People do fabulous things with the money meant for savings. The central theme behind "What happens to the money I save?" is: ”Will it beat the inflation? Or atleast will it keep up with the inflation?". I pay 10000 towards house rent now. If I save 10000, which I will withdraw 20 years later, Will it be enough to pay the same house rent? There are several financial instruments meant for savings. Fixed Deposits, Mutual Funds, Equity, Bullion are a few. You do expect returns out of these instruments. This makes sense.
Insurance is a financial product. There is no doubt about it. However, the objective of insurance is to cover risks that you have on your way. The insurance company pools in money from people. It issues contracts to the insured. Not every insured car ends up in an accident. This is how the insurance company makes profits. If an accident happens to your car, the insurance company will give you money to repair your car. If your car is stolen, you get money to buy a new car. The amount will not be enough to buy the new car. Still, you buy insurance for your car. It's a compensation for your old car.
When you sell your old car and buy a new one, can you expect the insurance company to cover the extra cost of the new car? Expecting returns out of insurance is such a thing. You got to earn money to buy a new car. You got to invest to multiply your money. If you're not confident about your investing skills, leave it to the experts - mutual funds. That's their core business. How do you expect the insurance company to do the job? If you've got money and want it to multiply, you should invest, not insure.
You should know the break-up of the premium amount, you pay towards a retirement product that includes insurance. A portion of the premium goes towards the insurance. Another portion of the premium goes towards multiplying your money. An undisclosed sum of money goes towards charges for multiplying your money. The regulators are now trying to bring in some transparency. The percentage of the undisclosed charges is more incase of ULIPs.
The money to be multiplied should be invested in an investment vehicle instead of a hybrid. The amount for insurance should be paid towards a pure insurance product. The cheapest premium available for a 50 lakh coverage is 8000 p.a.
To quote Suze Orman, financial guru, "The only type I like – for the purposes for insuring your life – is Term Insurance! If you are smart with the money you have today and you get rid of your mortgages, car loans and credit card debt and put money into retirement plans, you don’t need insurance 30 years from now to protect your family when you die".
The problem is with our mindsets. If I'm not going to get returns, why should I take insurance? Insurance companies took advantage of this mindset and invented ULIPs. The premium you pay is for your insurance. Forget it. If you survive the policy term, you'll have made more with the money you saved by not buying a ULIP.
பொருளுக்கு அலைந்திடும் பொருளற்ற வாழ்க்கையும் துரத்துதே...
ReplyDelete- சினிமா பாடலின் ஒரு வரி
எதுக்காக இவ்வளவு சம்பாதிக்கிறோம்? எதுக்காக இவ்வளவு சேமிக்கிறோம்? அதுவே புரியவில்லை.
பணத்தோட மதிப்பு நாளுக்கு நாள் குறையுதா? இல்லை உயர்கிறதா?
ஆகமொத்தம் பணமா சேமிப்பதில் பயனில்லை. புண்ணியமாவது சேமிக்கலாம்!