TRADITIONAL LIFE INSURANCE POLICIES

An Insurance policy, with whatever name comes, if attached with any kind of monetary benefits in the form of bonuses etc. on surviving the term is called traditional life insurance policy. These policies are most popular for tax saving purpose and for long term savings. A person becomes a disciplined saver under the commitments of such policies but the cost of discipline is very high.

As far as return on investments is concerned, these policies hardly earn the returns that can even beat the annual inflation. For your information, compounded annual inflation for the past 27 years as per Central Government’s published cost inflation index is 6.52%.

Furthermore my study discovered that these policies neither fulfill our insurance needs nor the investment needs. These policies have many shortcomings when viewed from the point of life uncertainties. I do not find any financial logic or the basis to park long term savings in such low yield products.

The better option is to buy a pure term life insurance policy for insurance needs and invest the rest among other tax savings products like Bank FDs, PPF, NSC’s, Mutual funds ELSS for investment needs. This combination fulfills all our purposes of tax savings, life coverage and the investment returns with added flexibility in our hands.