Monday, October 26, 2009

Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

via Personal Finance 2.01 on 10/25/09

It’s March, the tax planning season is at its peak and Ajay (person earning 6Lakhs pa working in an MNC) has started his yearly ritual of scouting for investments for saving income tax. Ajay tells his financial planner Pankaj that he is looking for an insurance plan which is very low on risks and will give good returns. Pankaj is a smart financial planner and tosses a question to Ajay which puzzles him. Pankaj asks Ajay “Do you buy a general insurance product for your car which gives you car insurance plus returns at the end of the year?” Ajay says “Car insurance plans are meant for protection against risks like accidents and not for returns.” On hearing Ajay’s answer, Pankaj smiles and says “Bingo, you are absolutely right. Don’t you think the same applies to life insurance also? Returns should be best left to investment products and not insurance. Life insurance should be bought only to cover the risk of loss of life and remaining surplus money should be routed through investment products for superior returns. A person should not mix insurance and returns.”

Posted via email from Ranjan's posterous

Post a Comment