Term Policy – Is it the best choice as per the insurance rate of return calculator?

Let us start with the case of yourself being a young job holder, for whom the venturing into the world of life insurance is for the first time. The very first point that you should note is that Term Policies, however, lucrative they sound from the small size of their premiums, are not very profitable from the returns point of view, as there is no guaranteed sum assured. Moreover, yourself being young and expecting to run a policy term of 40 to 45 years in the minimum, the returns from your 45 years of investment will yield nothing but peanuts.

What about endowment policies according to the yearly investment return calculator?

So, the next best option for you is to go for endowment policies. They come with guaranteed returns, both in the case of death as well as if the policyholder survives. In the former case, the entire sum assured is paid to the nominee, while the maturity value goes to the policyholder in case of the latter.

However, with hundreds of plans from virtually hundreds of insurers in the country, you need to calculate the returns before zeroing on any particular policy. The steps to do so are explained here under:

How to calculate return on endowment policy

1. The first basic step is a statutory one that should be followed in case of any type of insurance that you go for throughout your life:

READ THE OFFER DOCUMENT CAREFULLY BEFORE INVESTMENT

Take careful note of each and every point written in the document. Pay special attention to the bonuses offered and charges payable by you at every stage. After that you make a table that may contain the following columns:

• Year

• Premium paid

• Charges paid

• Final amount due

• Interest/ bonus credited

• Net Balance

2. Charges may be those charged by the government, insurer or the banks. The final amount stands for the amount of premium paid by you after deduction of charges. You get your interest on this investment and not the amount originally paid by you. Then comes the net balance which is residual premium plus interest on it that is finally added to your account to yield your final dues at the end of the year.

3. While calculating the net amount added to your account at the end of each year, please bear in mind that the charges are not always the same for every insurance company and every plan. You need to consult the offer document to get the full idea of the charges that you have to take into account and then only reach the exact amount that is credited to your account every year. Also, the bonuses vary from insurer to insurer. Sometimes it is on the paid premiums while at others it is on the sum assured. These are all detailed in the policy document. While considering the bonus amounts, just take into account the guaranteed bonus amounts. There are often some variable amounts that you need not consider as they are so much variable that it is difficult to gauge.

4. You need to repeat the calculations every year and go on cumulating the balance amount.

5. This way you reach your maturity amount when the year column shows the policy term, and the amount at the net balance column is the required value.

6. If you want to know your net return from an investment, just subtract the total amount of premium paid by you over all these years.

Calculations done? Now it is time to decide

Now it is time again to brain – storm. Is the policy worth the investment? Here the comparison is not only among various insurance policies but also other avenues where you could have invested the amount. However, please bear in mind that such other avenues like fixed deposits and mutual funds do not provide you with security on death or disability. This is where the comparative advantage of a term policy comes into the picture. If you are thinking of the return on your investment, then a term plan at a low premium is what you are most likely to go for. The rest of the amount is best invested in some high – return investment opportunities.

Other calculations: What else can you calculate apart from life insurance IRR calculator?

In the same way, you may calculate returns from your pension schemes, monthly income schemes, retirement benefit plans. You can also calculate your savings as well as your income tax. If you want to make a comparative study of the return on your investment, you may very well calculate returns from your insurance policies and also that from your mutual funds, fixed deposits and other investments. You can have a SIP calculator, or even a wealth management calculator.

It is not easy to decide on an investment plan that not only provides a suitable cover for you and your family, but that also offers you good returns for the time and capital invested. However, with careful consideration and fact verifications, one can reach the correct decision.

Naval Goel is Founder & CEO PolicyX.com