Kathmandu. At present, the bank’s fixed deposit rate is low. The stock market is deserted. Real estate business has come to a standstill. In such a situation, the general public seems to see single insurance as an investment option. If we look at the ratio of single insurance fee to the first insurance fee collected by the insurance company in this financial year, this is further confirmed. But is single insurance insurance the right option for investment? Does a single insurance investment yield better returns than other investments? Let us understand today the insurance of single insurance and its returns.
What is life insurance for single insurance?
Whether life or life insurance, it is usually a common understanding to pay the insurance fee annually as soon as it is called insurance or to pay the same annual insurance fee half-yearly, quarterly or monthly. However, in life insurance, there is an option to pay other insurance fees apart from these. that is, the option of single insurance payment. Under this option, the insurance premium to be paid throughout the insurance period is paid in lump sum at the beginning of the insurance and there is no need to pay anything throughout the insurance period. At the end of the insurance term, the insured gets the sum assured back along with the bonus. In case of death within the insurance period, you will get insurance and accrued bonus.
It is also compared to the term deposit of the bank as the sum insurance fee has to be paid in the beginning of the insurance and the lump sum amount comes back at the end of the insurance period. In recent times, customers seem to have preferred it as a good alternative to the bank’s investment.
Variation of bank interest and insurance bonus
We have been writing articles time and again about the difference between bank interest rates and insurance bonuses. Two of these things should not be forgotten is that in insurance, the bonus is earned on the insurance, while the interest is received on the amount deposited in the bank, but the annual interest on the bank’s deposit is received more often in the quarter. However, even if the bonus is earned annually in insurance, the insured receives it only at the end of the insurance term.
For example, a person insures Rs 1 00,000 by paying a single insurance premium of Rs 70,000. At the end of the insurance term, he gets Rs 100,000 for insurance and Rs 75,000 for 15 years with an annual bonus of Rs 5,000.
Another person who keeps Rs 1 00,000 in fixed deposit at 5% interest (let’s take interest paid only once a year) gets Rs 5,000 annually and Rs 100,000 at the end of 15 years. In this way, he gets Rs 75,000 during the bank’s deposit period and Rs 100,000 at the end.
What is the total return?
In the above example, he invested Rs 70,000 in insurance and received Rs 175,000 and rs 175,000 in a bank. However, remember the previous thing – the interest of the bank and the annual hand came in hand. Now again, if you keep that annual investment in the bank and get it at the end of insurance, how much is it? Yes, we didn’t care about the time to get money compared to the beginning. However, what is the specific return that the customer gets based on the time of receiving the money?
From the point of view of the bank, the annual interest of depositing the amount is 5 percent annually and the amount is returned at the end, so its annual return is 5 percent, but instead of insurance fees, the bonus is earned on the insurance. However, when the bonus is received only in the interim, it has to use the internal rate or return formula to get the same return on the bank’s investment. According to the formula, in the above example, the annual return of the bank is 5 percent and the insurance is 6.3 percent. That is, 5 percent of the investment in the bank is returned and 6.3 percent of the investment in insurance. In this case, insurance investment was beneficial. But is this the reality?
unstable interested, stable bonus
Although the current bank’s interest rate shows higher returns on insurance than the bank’s deposit returns, in the previous example, the bank’s annual interest rate is only 6.5 percent, but the return on insurance (6.3 percent) is higher. The bonus of insurance is stable compared to the interest rate of the bank, but remember that even when the bank’s interest reached 13 percent, the return of the insurance was the same as it is now. If the interest rate of the bank is 13 percent, whether it is the customer who comes to insure or the interest rate of the bank is 5 percent, the insurance will give the same bonus to all the insured. As a result, the bonus remains stable, but the main source of investment of the insurance company is the fixed deposit of the bank, so if the interest rate of the bank remains in the current state for a long time, then the bonus of insurance will definitely decrease.
Low returns when surrendering
While investing in a single insurance fee, it should not be forgotten that it is not just a means of investment, it is mainly a medium for carrying risks i.e. insurance and the principles of insurance apply to it. Since life insurance is done for a long time, leaving the insurance in the middle only fetches a dedication price, the return of which is very low. The interest rate of the bank has increased, now there is no situation to withdraw the insurance money and invest in the bank. Because completing insurance in the meantime yields much more work than initially calculated. In some cases, early surrender may not even raise the fees paid. For example, if you surrender the insurance of a single insurance after 3 years, then you get 80 percent of the insurance fee paid and the earned bonus. Since the bonus earned is calculated at today’s price, it becomes very low.
In the previous example, a person insures Rs 1 00,000 by paying a single insurance fee of Rs 70,000. If he gets an annual bonus of Rs 50,000 per thousand, he earns Rs 50,000/1000810000 annually in three years and Rs 15,000 bonus in three years. Since the amount received during the insurance period is Rs 15,000, the value of this amount comes to Rs 7,500 today. Finally, 80 percent of the rs 70,000 paid will get Rs 56,000 and rs 7,500 as bonus will get only Rs 63,500.
You have to wait till the end of the insurance to get the full results of the insurance.
end
Fixed deposits of the bank are the main areas of investment in insurance collected by the life insurance company. The insurance company and the insured will share the returns received from the sector. Therefore, the return of life insurance, a means of investment with risk, cannot be more than that of an investment-only sector i.e. fixed deposit. In view of the current situation, although the returns of insurance are high for a short time, there can be a big change in the interest of the bank for a long time and the amount invested in insurance will not yield full results, so it is not appropriate to invest money by looking at insurance as a purely investment option.
