Droplet's Axe the Tax - Tip#3

    We have been reasoning out with our readers about the mistakes that they do in Tax Saving process.. In keeping with the series, this week we write about the Heinous Tax saving crime of buying a Life Insurance policy.  A lot of us consider Insurance as an good investment only and only because it gives a "Guaranteed return"

Let us do a small exercise now, out of the two investment opportunities given below, Select one.

Option 1 - You give me 1 Gram of Gold and I give you back 1 Gram gold at the end of 15 Year.
Option 2 - You Invest INR 7000 and I give you back INR 48000 back at the end of 15 year.     

There is good chance that most of you would choose option 2 since you get almost 7X of our investment but in Option 1, you get only what you invested! 

NOW, HOLD ON! What if I tell you both are one and the same, Will you believe ? There is a very good chance that you won't. Of all the Illusions that we are duped with - "Insurance gives us guaranteed returns" is the biggest illusion that pushes into committing a fatal mistake in our financial life - buying an Life Insurance policy! 



As you can see in the above image, Price of 1 Gram of Gold was INR 7K in 2005 & 15 years later, in 2020, the price was INR 48K. So you would have bought a gram gold with 7K and today with 7X money, you are still able to buy the same one gram of gold. Effectively giving you zero returns. This is exactly what happens when you buy a policy. In that I have not come across a 15 year Insurance policy that gives 7x returns to be honest.

Now, let us focus a bit on the culprit itself - The Insurance policy.  A lot of smart readers will now start thinking that If they buy Gold and die, their families will not get that "Big Amount" to survive on after them. They are right because - 

According to Wikipedia “Insurance is a means of protection from financial loss”. So one should buy an Insurance policy to protect oneself from financial loss and never as an Investment!

As Financial Advisors, Our job is to provide you the best option through which you can both insure your life and save taxes meanwhile making sure your money otherwise locked works better – 

Let us now look at the alternative ways we can achieve the same thing. So if you are truly and honestly worried about your family after you, get a TERM Insurance to cover your life. Though Term insurance does not give you any guaranteed returns in case of survival, the benefit far outweighs! Our Attempt in explaining the Benefits below –


So next time you write a cheque to the Life Insurance company thinking you are getting an Guaranteed return along with tax saving.. Bear in Mind -

Insurance is to protect from a probable loss.
Insurance is not an investment.
Insurance should not be bought for taxing saving alone.


For financial planning and investment-related queries, write to us at dropletadvisory@gmail.com or call us at 9962399924 / 9551373455. Visit our website - www.dropletwealth.com

Comments

  1. arun sharemarketprofile30 January 2022 at 23:30

    Our stock trading is designed so that the students can learn using them anytime, anywhere. We are one of the Best Share market training institutes in Chennai.

    ReplyDelete

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