Comparing Life Insurance Proposals
I want to compare different types of Life Insurance in which a series of annual premiums are paid for a specific term. At the end of policy term, which may be longer than premium paying term, a certain amount is paid back to the proposer on survival. In case of death, a death benefit is given. Different insurance companies offer different terms which cannot be compared easily.
I would like to know what is the best way to compare such proposal.
An alternative that comes to my mind is computing PV of all payments and all receipts and finding the true cost of insurance. Is this the correct way or can a more scientific way of comparing such proposals be worked out ?
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Not commenting on the wisdom of various types of life insurance, here's a strategy to help you make a comparison between various insurance options with investment.
Get quotes from insurance companies that provide term life insurance. (This is insurance that does not include any investment portfolio.)
Compare the cost of buying a death benefit only vs. the cost of the other insurance options.
Term insurance should be cheaper, so figure out the future value that you would end up after investing the difference in cost (versus using insurance as the investment vehicle).
In general, you will pay more to invest via an insurance policy (at least in the US and Western Europe). But there are tax and other situations where insurance makes alot of sense too. You really need to consult a more authoritative reference specific to India to make the decision that is right for you!
I think the aspect of calculating the value of a life insurance policy has been addressed in plenty of detail in the other answer/comments, but I wanted to add a note that came up in the comments to this answer. When you're considering life insurance policies from multiple companies, you'll also want to look at the company's rating with AM Best or a similar rating agency, e.g. Standard and Poor's. These are ratings like A++, A, etc. that measure the financial strength of the company, and since you often hold a life insurance policy for an extended period, you don't want to purchase it from a company that may go bankrupt and disappear before the term expires.
This is also another way to verify that the company is legitimate, because a small company that might not be as legitimate as a major insurer either won't have a rating (because it's too new or won't publish the information) or will have a low rating because there isn't enough data to gauge its prospects yet.
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