Expert advice

May 02, 2012,15.55 IST

Looking to invest in life insurance policy? Here's help

In an interview to CNBC-TV18, Hemant Rustagi, Wiseinvest Advisors, guides investors on life insurance and personal finance queries.

Below is the edited transcript. Also watch the accompanying video.

Q: Invested with LIC Jeevan Tarang. Should I continue with this?

A: Yes, this is basically a whole life endowment plan. Typically what happens in this plan is that at the end of premium paying term, you will get accumulated bonus and thereafter, you get annuity at the rate of 5.5%.

Even if I assume that the bonus rate is Rs 30 per Rs 1,000, I think you should get roughly around Rs 1,12,000 or Rs 1,13,000 as a bonus and thereafter, like Rs 13,500 as a premium. That is how it works.

The problem with this plan is on the insurance cover. It is not adequate if you are relying on this as an insurance cover. The second is the returns. It is very low and is around 5.5% annuity after 15 years. If you compare this with a situation where you keep your investment and insurance needs separately, it is the ideal way of doing it.

For example, even if you take a term plan of Rs 30 lakh for 30 years, the premium is going to be only around Rs 6,000. You can invest Rs 8,000 in equity fund through SIP. If I assume a return of around 12% annualized, it will create a corpus of around Rs 3.8 lakh for you. The remaining 4 – you are paying a premium of Rs 18,000 today, so I am just giving you a break up of how you can get better results.

The Rs 4,000 can be invested in PPF for 15 years that will give you another Rs 1.5 lakh and you can see the difference here. You have insurance cover of Rs 30 lakh, which is 12 times of what you have now for 30 years and your corpus is going to be around Rs 5.3 lakh.

So, even if you earn 6% tax free which is very conservative, you will get around Rs 32,000 per year. My advise would be to look at the second option of keeping your investment and insurance needs separately. I think you can get much better results than what you are getting right now.

Q: If one didn’t go this annuity route into Jeevan Tarang or similar policies, how does one approach retirement, assuming the caller is at 60 and she has a corpus. How does she arrange for an annual or a monthly return, what is the best way to go ahead?

A: It depends on when you start your process basically. If she has 25-30 years before the retirement, she has enough time.

My belief is that she should look at investing in equity fund through SIP route because that is the best way of accumulating. At the end of the day, you have a time horizon of 25-30 years.

You need to beat inflation, need to look at asset class, accumulate that and once you get there, say a year or two before you complete your time horizon, start taking out money from equity. And to preserve the gains you have made and look at what the scenario is at that time. There will be many options available at that point of time to generate regular income for you, rather than investing in an investment option which is going to give you very low return today.

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