Insurance is not waste of Money

I was having a conversation with my friends about investment and insurance and it came up that some of my friends are not using the insurance because they think it's a waste of money. For them Life Insurance Company of India which is an endowment plan is much better than the pure insurance.

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Let's go through the endowment plan which is nothing but you will be paying money for like 15 years to 20 years and then after that you will get your money back along with some bonus. And by the time you are investing, your life will be insured. Now the problem here is that your money is not growing more than 5% in this plan that means your money is losing its value.

The problem is people usually sell this policy by giving false promise in the future. But the truth is that the promises are really false and usually your money is making thesr insurance provider rich and you are not really getting anything. My friends think that if you are not getting your money back then you are wasting your money.

But this is not true, instead of giving money to the insurance and getting only 5%, you should invest 80% of that money in the equity market. And then you should put 20% money for the pure insurance. Yes that 20% money you will not be getting back but again your 80% of the money will give you more money than the total money back.

As you can see you are paying quite a less amount of money for the insurance and the sum insured will also be quite high. And along with that you are getting much more than what you might have got if you have taken a endowment plan. I tried to tell this to my friends who thought insurance is a waste of money. The problem is people see a big number which agent tell them but they don't do the math to find out how much they are eventually getting every year.

And the problem with these endowment plan is that you cannot close this after 4 or 5 years because you will lose a lot of money and thus people usually have to continue this till maturity. And that's why lakhs and lakhs of people are getting trapped because who are trapping people are getting hefty commission out of it.

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