@avi you are overlooking the basic benefit of insurance over savings or investments in the form of FDs/RDs.
Let me take an example of vehicle insurance. Suppose with the kind of money you earn, you are able to afford only a Maruti 800 and have 5 lacs in FD. You bang a Wagon R; your vehicle insurance takes care of the repairs of the other vehicle. You learn to be a good driver and an investor. You decide not to renew your insurance because you could've easily paid off the Wagon R guy with the money you had in FD or savings. So, you divert this insurance money towards FD/RD, which enables you to generate more money to take care of any exigencies. I guess you'll do fine in this situation until you bang a Rolls Royce. Digging into your savings/investments won't help you in this case, but a 3rd party insurance will get you through.
Driving without 3rd party insurance is illegal, so the above scenario may not happen with well informed people. It's upto you to buy insurance for your own vehicle as it's not mandatory. As long as you have 5 lacs in FD and driving a Maruti 800, you'll be fine without an insurance for your own vehicle. But if you want to drive a costly vehicle, buying insurance makes more sense when you are expecting repair costs in lakhs.
I had FDs and RDs long before I bought those LIC policies. These policies are going to take care of my medical expenses in the event of an accident so that I won't have to empty my lifetime savings.
Suppose I work as a security guard, earning 2K per month. After spending 50% on monthly expenses, I put 1K in an HDFC RD. After a year I would've Rs 12579.91 saved for the rainy day. 12K is too good for me in case of losing my job due to retrenchment or altercation with the boss. But this much money may not be enough if I am involved in an accident resulting in amputation of my leg.
On the other hand, putting 12K a year in insurance against accidents would entitle me for Rs 2Lacs aid. I can afford to buy a prosthetic limb and continue to earn regular income. Practically, I'll put 6K in insurance and the rest in FDs/RDs as I am a low wage earner.
Everyone calculates the wealth one can accumulate in 20 years by investing in RDs/FDs etc. But they ignore the size of coverage an insurance can provide in just a few years. I may get 10~20lacs lesser in the end but then I would have high probability of ensuring a steady stream of income, if I let my insurance take care of any unforeseeable accidents. If I turn towards RD/FD/Savings everytime I break my bones then I may not be 11lacs richer by the end of the 20th year (as per the figures provided
here). Also, a few lakhs here and there won't matter much 20 years from now.
This whole insurance scenario is like
a bird in hand is worth two in the bush. While working as a security guard and having an accident insurance, I can get Rs 2lacs when my survival is at stake. On the other hand, it'd take me around 10 years to save Rs 2lacs in HDFC's RD. Needless to say, I'd be more careful during these 10 years (no bungee jumping and para-sailing
) but my lifetime savings would vanish in few days if I happen to lose a limb in the 11th year.
You have 7 LIC policies, which is bad to begin with. Secondly, unless they are include medical care, LIC only have accidental or death benefit.
I had 6 till last year. Their annuities are aligned with important milestones of my life. 1 payback policy was designed to take care of the premiums for other 5. As this payback policy is about to mature, I got another one. It'll be back to 6 next year. Also, I may surrender the newly bought policy after evaluating pros n cons of new LIC schemes. LIC discontinued a lot of good plans and the new ones aren't so lucrative.
Yes, RD + Term would not cover health benefit. So, get a separate health insurance also. RD + Term + Health insurance will be great.
Health cover provided by employers is generally sufficient these days. I'll have to look for my own in case my future employer doesn't provide health benefits.
Isn't that worse with LIC? Atleast you can get your money back from RD/FD with little/no extra fee. However your money is locked in LIC. If you lose your job all of a sudden, you will not get money from LIC. But at least you can use the money of RD/FD.
Just like with other savings instruments, one can take a loan from LIC policies but I may not take that route. I have RDs and FDs for unexpected expenses.
In case of a job loss due to non-health related issues, yes RD/FD/Savings/Equities would be my saviour. LIC policies are just a means to ensure my survival and help me get back on track.
