Viability of Insurance policies as Investment
Life is the name of uncertainties. Tomorrow is not under human control. You are always worried about your family’s future once you are not to support them either emotionally or otherwise else. Even if you’re alive, you might not be able enough to extend any support to your people in the time of crisis.
In such a case almost every individual looks for a security, for which the planning starts right at the beginning of your career. You try and make provisions ready for yourself and for your people to save all of you from any kind of economic turmoil.
A little about Life Insurance Policy
Insurance is a process whereby the insurance company undertakes to indemnify any anticipated losses caused by a specific cause in return for a premium.
There is a provision to include a nominee to enjoy the benefits after the term gets over. Either the Insurer himself or the nominee can reap the “accumulated sum” at the time of maturity.
The best way to evaluate the viability and success of “Life insurance” as an investment is to calculate the policy’s internal rate of return or IRR.
Three things should be considered- the sum assured, the premium paid on a regular basis and the return which one is likely to get at the time of maturity. If your calculation reveals that you are paying a higher premium than the return you would be getting years later then you have to make a decision.
There is another point to be considered is about the fluctuating market. There are policies which yield a definite return at the time of maturity which remains unaffected due to the fluctuations. Guaranteed premiums are required with guaranteed returns. Here you must understand that your money will be safeguarded against any kind of changes over the period of time. On the other hand, the return which you would get at the time of term completion might be too little in compared to what you would have got with a booming market at that time.
Of course the security part cannot be exchanged with other factors. With Insurance you are assured that you and your family in your absence would get a lot of support from the policy.
In many cases the return in a life insurance is even below 5% but Canadians prefer to go for such an investment looking at the long term investment and guaranteed returns which otherwise would not have been possible in any other investment.