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5 years back when I was single and needed an investment to reduce tax liability, I bought a life insurance policy. The cover is 10,00000 INR but it has a money back option which pays 100000 INR, every 4 years until the policy matures.

Now in 2016, I am looking to increase the life cover as my liabilities have increased. I have hit my 80C limit and am no longer looking for tax relief. My insurance agent suggests two options:

  1. Term insurance- where cover is high but no returns on maturity.

  2. Pension Plan- which provides a consistent yearly payment after retirement and also a medicare cover amount.

I was personally inclined towards 1, until I came to know that there is no maturity payment involved.

Which one would be the better to invest in?

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    Insurance and a pension plan are completely different products, for different purposes. Insurance is _not an investment; at best they may take a small amount of the money and invest it for you, charging you a fee for doing so but burying this in the policy so you can't see just how bad an investment vehicle it is. Buy insurance as insurance, if you actually need insurance (if you don't have dependents, you may not); if you want to save for the future, invest.
    – keshlam
    May 11, 2016 at 10:09

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Like keshlam mentioned Insurance and Investment should not generally be mixed.

Term Insurance is the best and cheapest insurance. This would work out better than Money Back Option you have. i.e. Take a Term Insurance for the same amount, invest the difference between the Premium of Term Insurance and Money Back option. Even if you invest this difference in Bank FD's the return is much more than what your Money Back policy gives.

Pension Plans are not advisable. Although IRDA has in recent times streamlined quite a bit of it, there is still some amount that goes into commission, plus the returns from Annuity providers [the yearly payment you get after retirement] is less than what you get from FD's. i.e. currently the Annuity rates are in the range of 5-6% and one year FD's are in the range of 7-8%.

The only reason one need to go with Pension plan or Money Bank plan would be if one is not financially disciplined or can't reconcile to the fact that Term Insurance in-spite of not giving any returns is much better.

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  • Thanks Dheer. I never thought about insurance that way. I always had a belief that they were necessary evil. I will go for term insurance and a fixed deposit maybe.
    – Vin
    May 12, 2016 at 5:00

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