Insurance and investment are a bad mix

Experts say that a pure life term policy combined with an investment in mutual funds is a better option than an investment in traditional endowment insurance policies and ULIPs.

Typically, people buy Unit Linked Insurance Plan as it offers both investment and life insurance under one head. Advisors, however, feel that ULIPs do not offer optimal protection or comparatively better returns as these are bound by insurance regulations.

Experts instead advise people against combining insurance and investment mandates as these are two different areas. “It is ideal to split the amount earmarked for ULIP or endowment policy between pure life term policy and mutual funds. This gives a higher insurance through term policy and higher return on mutual fund investment,” said Mr. G Sravan Kumar a financial advisor.

Pure life term policy can be claimed only in case of death, whereas endowment policies promise to return your investment along with a certain return after maturity or an assured sum in the event of death.

There is, however, a caveat. The premium that you paid for pure life term policy will not be returned to you, if you are safe, as it is a pure life protection plan and its only purpose is to protect the policy holder’s family in the event of his death.

Mutual funds are a high risk and high return product. Though there is a possibility of eroding the investment, mutual funds typically give good returns over the long term  horizon of 10 years.