Investment Vs Insurance

I have seen some of my friends investing in Life Insurance Corporation, Unit Linked Insurance Plan's etc just for getting into the 1 lakh mark of the investments in Tax planning. This is the worst step to take since Insurance and Investments are not the same. Let me explain.

I would rather call Insurance as non-endowment policies. Here the premium will be very less, but you wont get any money back, if you survive even after the tenure. In case of endowment policies, the premium will be very high but you would get the money back, if you survive at the end of the tenure.

A normal person would think what if I survive at the end of the tenure? and thats when they end up with endowment policies. If you know that you gonna survive at the end of tenure, why take insurance rather invest elsewhere. These are not good investments because the interest you would get out of a life insurance (endowment) policy is phenomenally lower compared to stocks, Mutual funds or even some state owned fixed deposits.

My tax adviser asked me to invest in one of the leading bank's ULIP and I was also tempted since he said after 3 years of lock in, I should be able to take the entire money I had invested (all the 3 years) out without getting taxed. But trust me thats was a worst mistake. The bank would take a major percentage of your investment as service charge for them and it will be even difficult to get what you had invested, leave alone the interest (from stock market) at the end of tenure.

So avoid LIC, ULIP etc as instruments for tax planning. If you are really keen on insurance take a non-endowment policy with a small premium, which you can wish to lose for every month of your life, just in case you survive at the end of the day.