When you finish college days and land in a good job, it is that time when the word ‘savings’ seems like a new word on the block. When a newbie sets out on saving measures, he first thinks small in terms of investing his money in recurring deposits, etc. These small savings schemes offer flexibility in terms of operation and give good choices to the common investor.
As he continues his journey into exploring further options, he realizes the importance of saving and building up the large corpus, because saving is not just about gaining returns in the immediate future, but planning well for future days ahead, for starting a family, having children, retirement etc. That’s exactly when the thought of owning a life insurance policy, not just for oneself but for the whole family comes into the picture and sets a new investment path. Let us look at some significant pointers where life insurance varies from savings made for a lifetime.
5 lessons about the investment you can learn from Indian history!
1. Cost factor
Savings done periodically to build a large corpus is dependent on the investor himself. The investor gets better choices in terms of the amount he desires to save in case of personal savings done for one’s life. In the case of owning life insurance, choices are less in terms of the investor deciding how much money to save. The insurance company decides on the cost factor and the investor adheres to it.
2. Returns earned.
Returns earned in case of life insurance is much higher, given the long gap in which money gets invested in. The longer the insurance term and earlier the investor begins his investment in life insurance, the higher his returns would be. Savings made for a lifetime would definitely be based on smaller interest rates, definitely not as much as a life insurance policy offers.
3. Benefit riders.
When an investor, unfortunately, passes away during the tenure of the life insurance policy, the rest of his term gets waived off, and the dependent family/beneficiary gets the benefits of the policy plus the total amount invested. In case of other types of savings, the nominee would receive the amount invested till the investor was alive plus any returns received till then.
4. Time frame.
Usually, life insurance policies are not for short term benefits. They last for a very long time and build a huge corpus at the end of the term. Other saving instruments are time-frame based, some are short term and some are for the long terms, but the investor gets flexibility on choosing the tenure of his investment. Lock-in periods are generally large in case of life insurance schemes.
5. Surrender value.
If a person is unable to carry on with his life insurance policy owing to large premiums, he can opt-out of the policy, but that result in the lapse of the policy and the following termination. This happens after the investor is provided some grace period and repeated warning messages. In case of other investor schemes, the person can surrender his saving instrument at the loss of a certain percentage of the initial amount he has invested but gets back a large share of the initial capital investment.
Factors to be taken into account are, the term of investment, the purpose of investment, whether the investor is looking for short term gains or long term goals etc. Setting these pointers intact will set the ball rolling for the right kind of investment at appropriate stages of life.