The Indian stock markets are growing, with the Sensex hitting stratospheric heights of 70,000 points and above. Even people who haven’t considered investing in shares are now looking up, pondering if they are missing out and should get in.
Because of the tax advantage, life insurance advertising campaigns often increase by several notches in the January-March quarter, which is the final quarter of a fiscal year. When we talk about this, we think of the Unit-linked insurance policy (ULIP), which is one of the most popular forms of life insurance policies (according to the insurance industry data). ULIPs combine death benefits with a market investment. The market investing component of this product is similar to a mutual fund. ULIPs are simple to sell since their returns are tied to the stock markets, which appeals to everyone. A portion of the premium you pay goes towards life insurance cover, while the remainder, generally a greater portion, goes toward investing in the stock market based on your fund selection.
You soar upwards with the market, and everything is fine as long as everything goes smoothly. There is life insurance for your own future or for the security of your family, and your invested fund will increase with the market. There’s also a tax incentive. But when the tune stops, this is when matters go bad to worse. When the stock market drops, so does the fund’s value. This is sufficient to cause despair for anyone, including seasoned investors. For someone who made this insurance product purchase to safeguard their children, but subsequently lost its value due to outside events such as market collapse, the disappointment is substantial. After all, it is essentially the insurance which the policyholder purchased. So, if you want life insurance, you can surely get it. But make your stock market investments separately. Engage in the market while soaking up the gains and losses.
A product that provides several benefits under the same cover is risky. There is no financial product that can satisfy everyone. It’s just an easy advertising tool deployed by some profit-motived insurance companies or agents. If you don’t know much about life insurance, you may easily learn about it. However, investors should not mix both insurance and stock market, as both are two different ball games.