This time of the year, most of my friends prefer to go and get Insurance policy just because they have to buy one so that they can save tax. I get calls from various Insurance agents to take up policies from January to March time frame and the prominent reason they give me to buy the policy is “Tax Benefit”. I am not very keen on taking a policy just because I get a tax break. I know that it does not work that way.
I don’t mind taking a insurance cover for the purpose of insurance rather than “Tax Benefit”. But the fact is that most of us prefer to take the policy thinking it will reduce our tax bracket. I have done that in the past. I have taken a policy and I do pay a yearly premium. I did not know much about tax at that time and for tax benefit I did take a policy only to learn that it does not make sense.
Let me explain to you clearly how things work. There are many insurance policies that most of us know about. The basic thing about policy is that in case of death you will get a sum assured and depending on the product you will get money back every 5 years once or 10 years once and on similar lines. Is it worth it?
Most of us think that it is a nice policy. But I don’t think so. The insurance policy is fine. Assuming that there is no mishap that causes death during the term and I pay policy premium yearly, I put forth my thoughts. If I pay a yearly of Rs.5000 for 20 years according to the policy that I have taken I will get a sum assured of 1 Lakh at the end of maturity. If I deposit an amount of Rs. 5000 for 20 years in a savings account at the interest rate of 9% then I would be getting at the end of 20 years, any guesses as to how much I would be getting? It is Rs. 290659.4704.
Isn’t that strange? Sum assured is just Rs. 1 Lakh and if I just deposit in Savings account I get close to Rs. 3 Lakh. Does it make sense to have a insurance policy then? The answer is it depends. If you take a policy and wait till maturity then it does not make sense. If there is a mishap within 10 years of taking a policy then it makes sense. But we can’t predict anything.
If you take up a policy just for Tax saving purpose then I would suggest you to re-think about it. According to me it does not make sense anytime. You will not save up a big deal and in fact you are not getting back what you deserve.
Engineer's Finance 
Here again it is a matter of perspective right? Nobody plans bad things. But life is definitely unpredictable. Some people do not like the risk and invest in policies. Others like to take risks. The more you risk, the higher are your returns – as simple as that
About the contest:
This is what I gather after reading your rules:
1. You want other people to “popularise” your blog and you are luring people towards it by using money – nice marketing dude! Money is always the attraction
2. Just having more RSS feeds and about 1000 vistors to your blog everyday makes your blog “popular” – again nice thinking dude. I wonder why I had not thought about this.
3. Even if 1000 visitors hit your site daily, how are you going to make sure that they actually read the articles. Is there transparency in that?
I agree. It makes sense to have one policy, which is chosen based on the medical benefits, rather than tax benefits. And as you’ve demonstrated, the sum assured, is really no match in case you invested the same.
@Shashi: I agree that life is unpredictable. I agree about the returns and the risks. But that does not mean that you take a policy for TAX BENEFITS. It does not make sense any time for me.
Regarding Contests: I am selfish and want many visitors to visit my blog. For visitors to read my blog as you rightly pointed out earlier in the day, I have to write quality stuff so that I keep them interested whenever they come to my blog. There is no transparency in people reading my blog. If they like it they will read it. All that I am trying to do is, to let others know that ENGINEERSFINANCE exist. That is it.
@Tess:
Yeah Tess you are absolutely right.
If you want an insurance then, you should take a Term insurance, which has lesser premiums. One should not use the insurance as savings products. Aren’t there better choices for savings taxes? PPF/ICICI bonds etc. Are they still there?
@SK:
Agreed dude. I have met very few people who think of term insurance. Yeah there are better products for saving taxes, I prefer PPF since it fits in my Long term plan.