Is LIC policy a good investment? Kirtan Shah’s LinkedIn post sparks debate on insurance vs investment | Mint
Source: Live Mint
Life insurance provides financial security to a family in the event of the unfortunate death of the policyholder. Its primary aim is to ensure financial independence for the policyholder’s family. However, some policyholders may choose a life insurance policy as an investment option.
Kirtan Shah, Co-founder and CEO of FPA Edutech, an accounting and finance ed-tech company, has shared the consequences of opting for life insurance as an investment tool.
Shah’s LinkedIn Post
In a post on LinkedIn, Shah explained the returns on a LIC policy his father opted for nearly two decades ago, which matured recently. Around 5185 premiums were paid during the policy’s tenure. He received ₹2,11,400 as a maturity benefit, a sum of money given by a life insurance provider when the policy expires and the policyholder survives the policy term.
“21 years back, my father took a policy which matured yesterday. 5185 premium was paid every year for 21 years. I received a maturity benefit of 2,11,400, which is a 5.68 per cent return over the last 21 years of holding without liquidity (sic),” Shah said.
He compared the returns on a life insurance policy with a Public Provident Fund (PPF), a long-term investment scheme. Both are tax-free. The return on the PPF is relatively higher than the return on the life insurance policy worth ₹1 lakh, as mentioned by Shah.
“Yes, this is tax-free; yes, this was probably guaranteed, but so was PPF? PPF in the early 2000s was 9 – 9.5 per cent with the same 80C benefit and the same tax-free maturity. In the worst also, PPF was 7.1 per cent, which it is currently, but I would have made the 9 & 9.5 per cent when it was there & hence, the net is much higher even if it is currently at 7.1 per cent. Now, the argument is that there is lifetime insurance. By the way, the insurance is 1L (sic).
Shah further advises against mixing investments and insurance policies. “Neither did the product have insurance nor returns. Don’t mix your investments and insurance; it does not work well,” he added.
