There are some people who are looking for the cheapest life insurance policy to fulfil their protection need. However, at the same time, there are people who like to invest the maximum fund in the insurance schemes.
When posed with the question why, they simply reply more investment means more returns. The question here is- is it prudent enough to invest out-of-the-limit in insurance schemes, even if these schemes belong to unit-linked category? The simple answer is no.
Insurance is not an investment tool exactly
The core purpose of having any insurance is to have protection against contingencies. To offer the financial protection, insurance companies are charging some amount out of the premium as fee and the rest of the amount is utilized for creating the pool of funds to protect those in need. To do this, insurers have various kinds of propositions so that every person interested in insuring himself is able to find a plan that suits his financial state.
Initially, plans were largely traditional in nature that offered guaranteed minimum returns over a period. Many people did not find this idea of insurance lucrative enough and preferred other investment tools to earn comparatively higher profit. So the insurers came up with ULIPs that is unit-linked insurance plans, to be able to give better returns or market-linked returns to customers. The basic fundamental of providing protection remained the same.
Take inflation into consideration to understand whether it is right to over-spend Hauser Insurance
To better understand the concept, take inflation into consideration and calculate the financial returns you would get over the period. Would the returns received be considerable enough to fulfil at least some of your needs? No. You find that you would basically be using your own funds that get added to the small percentage of profit your investments are able to accumulate over a period of time. Saying that does not imply that insurance is of no use. It is just that the system of insurance works to provide you much-needed, timely protection that you would not be able to avail by yourself. So, it always makes sense to have insurance, but one should not over-spend on it to have huge returns.
How should you decide whether you are over-spending?
There are many general rules that insurance dealers follow to make buyers understand the estimate of their needs. The basic question is- how much life insurance you really need? To check what you are spending is enough or more than what you are required to spend, read and calculate the recommended sum insured.