While the popularity of these papers was rising sharply because the stock market had reached unprecedented highs, experts say the COVID-19 pandemic and its impact on the nation’s browsers have made ULIPs an unattractive investment.In times of a pandemic, opting for an insurance cover becomes more important. That is because an insurance policy helps protect the family should its breadwinner loses his job, falls ill, or in case of his death. In the current financial year, more and more people are seen buying insurance.
Pankaj Chauhan, CEO and MD, EPOCH Insurance Broker, says, “Insurance is also considered as an investment vehicle, and many individuals and households buy insurance not only to protect themselves and their families from adversity but also because it is a secure investment.”
However, before zeroing on an insurance policy, you should know the policy inside out.
Are unit-linked insurance plans a worthwhile investment?
Unit-linked insurance plans or ULIPs were touted as great investment vehicles when they were introduced a decade-and-a-half ago. They promised astonishing rates of returns and usually met expectations.
Chauhan says, “In early 2000, though ULIPs were technically insurance vehicles, they were often sold as investment papers. Their popularity sharply declined following the 2008-2009 financial crisis when the stock markets tanked. ULIPs were linked to stock market indices, when equity browsers fell dramatically, so did the returns on these insurance instruments. He further adds, “Today the scenario is similar or worse than that in 2008-2009. The stock market has fallen dramatically from where it had been just 3 months ago. Today, like in 2008-2009, ULIPs are taking a beating. The current economic climate does not bode well for ULIPs.”
While the popularity of these papers was rising sharply because the stock market had reached unprecedented highs, experts say the COVID-19 pandemic and its impact on the nation’s browsers has made ULIPs an unattractive investment.
Should you invest in Endowment plans?
Industry experts say endowment plans are the ideal insurance vehicle. They not only provide an assured sum to beneficiaries in case of a policyholder’s death but also, on policy maturity, the capital invested is returned with the interest amount.
Endowment plans are coupled with insurance coverage along with riders as an additional benefit. A typical rider in endowment plans protects the policyholder in case he or she becomes unemployed or disabled. If a policyholder loses his or her job through no fault of their own or through an accident, the policyholder becomes entitled to a steady income from their insurance provider. Note that the details of such riders vary from one insurance provider to another.
Chauhan says “Today, when there is more uncertainty than ever before, investments under endowment plans have gained momentum. While the investment returns on such policies are significantly lower than those of ULIPs, such gains are assured and guaranteed at times which differ from Insurer to Insurer. Also, the many riders that come with endowment plans protect policyholders against several unforeseeable events including unemployment.”
Opting for endowment plans with riders can help you secure your family’s future. The policy offers triple benefits – the family of the policyholder stays protected in case something happens to the policyholder, also if the policyholder loses his or her job, he or she is guaranteed a monthly income until they become employed.
When the policy matures, the policyholder receives the corpus that he or she invested plus interest. Experts say, in today’s economic climate, endowment plans have never been more relevant.
Why should you look at Term plans?
A term plan is the most straightforward risk protection plan from insurers. For a monthly or yearly premium, a policyholder enjoys a pure insurance cover.
Chauhan says, “These days insurance companies have launched Term Plans with Return of Premium on Policy Maturity. While because of Pricing and Popularity of Regular Premium Term Plan in the said policy premiums paid for the agreed policy tenure are forfeited by Insurer at the time of policy maturity. While this seems like a bad deal, it has some advantages.” He further adds, “For a relatively small sum, a policyholder is provided with an insurance cover of up to 1 crore or more.”
For many households who are concerned about their families, term plans seem like a sound deal. Hence, according to experts, investing in term plans makes greater sense than ever before.
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