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I am a techie who has started to learn about investments very recently. A friend of mine who is an agent that sells investment policies has been suggesting different policies for me to purchase. At first sight, these policies seem very attractive. For example:

Paying 100K INR every year for 10 years and then receiving double the amount (i.e. 200K) every year for 10 years after that.

However, I did some calculations to determine what 100K is worth now and what it'll be worth in 10 years and I found that the policy isn't much of a gain.

Another option for investment has the following terms:

Pay 100K INR every year for 10 years and then start receiving 35K immediately every year, for life.

I am not sure how to start evaluating these options and terms, and how to position myself to better make these investment decisions. What should I read to be able to make these decisions?

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  • What does "... receiving 35K immediately every year till we live with an insurance coverage for death" mean?
    – Flux
    Oct 9, 2020 at 4:41
  • Others will be able to speak more to the specifics, but your friend is selling you financial products. He's a salesman who wants to make a commission. Step 1 of investing - don't pay someone's commission.
    – NPSF3000
    Oct 9, 2020 at 4:42
  • Is your friend an insurance agent?
    – Flux
    Oct 9, 2020 at 4:42
  • I was in a similar situation 3 years ago when some structured index annuities were recommended to me. It wasn't easy but fortunately, I recognized how options were being used to create these products and realized how much better the performance would be if [I executed strategy myself](money.stackexchange.com/questions/90379/…. I can't tell you how to start evaluating these options and terms other than to learn as much as you can about the respective products and keep asking questions on sites like this until it becomes clearer.
    – Bob Baerker
    Oct 9, 2020 at 10:44
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    I own a couple of variable annuities that I'm drawing 6% year from. They'll pay me that for the rest of my life, with any balance going to my estate if any balance remains. When I contemplated buying them 20 yrs ago, I knew nothing. Apart from my research, a trick I used was getting recommendations from one agent and showing them to another, telling him that I found them online and (1) what does he think of them and (2) can he offer something better? You'd be surprised how much they'll tell you when dissing the competition. I eventually made an informed decision that I was comfortable with.
    – Bob Baerker
    Oct 9, 2020 at 18:15

1 Answer 1

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Before I answer, Insurance agents are never friends. Ask for policy wording and check for the same on website. Quite often the example shown are indicative but are sold as guaranteed returns.

Assuming the numbers are true, the best way to calculate is find the returns and compare a similar returns from Banks. I.e. both offer similar low risk.

In the first, if you look at it You are investing 100K for 10 years and getting 200K after 10 years. Around 7.1% rate of interest Quite good compared to Bank FD rates of Around 5%.

If you take the second example the 100K per year would grow to around 1400k at the end of 10 years, every year on this corpus you are getting 35K around 2% ... this looks quite low.

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  • I believe that the you have used the compound interest to calculate 7.1% on policy 1. Some of these also have tax benefits which mean I don't have to pay the tax on the gains from this. Also, regarding Point 2, I am getting 35K per year till I live. So, not sure on how to calculate the returns in this case
    – Keval Doshi
    Oct 10, 2020 at 3:40
  • @KevalDoshi Yes compound interest. Second one find out what the corpus would be after 10 years. Say at 6% rate. If you keep the corpus in FD after 10 years, the return is much lower at 35,000.
    – Dheer
    Oct 10, 2020 at 7:10

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