Insurance

3 years ago I had written about the exhorbitant commissions charged by Insurance Agents (which along with the advertizing and agency margins come to close to 40% of the first year premium)
Also I had repeatedly stressed that insurance is mis-sold in India.. it should not be taken as an investment avenue but a risk mitigating option.

However this blog summarized the fraud floated by insurance companies in the best way:

An ad at http://www.simpleinsurance.in from ICICI shows you how, if you invest Rs. 2,000 per month for 20 years, you could get a pension of 15,315 per month after 30 years (at 10% annualized return).

But let’s have a closer look. Let us put the Rs.2,000 per month in a bank fixed deposit (FD) at a nominal 8% interest compounded annually. That makes Rs.24,000 annual investment in FD. For the next 30 years, let us assume that the interest rate remains constant at 8%. The Rs.24,000 per annum investment at 8% will accumulate to Rs.29.36 lakhs.

This amount (Rs.29.36 lakhs) if reinvested again in FD at 8% interest will give annual interest of Rs.2.35 lakhs or a monthly interest of Rs.19,575 for life. Now compare with this the Rs.15,315 per month ICICI’s Retirement Plan. The FD comprehensively beats the returns of ICICI by a massive Rs.4,260 per month (21.8% more). And don’t forget that the FD return is more or less guaranteed where as ICICI’s 10% return in risky and market dependent (it could be less, or more). Also, the accumulated Rs.29.36 lakhs is preserved for passing on to the next generation

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