One of the principal objectives of life insurance is to provide risk coverage for your family. Life insurance companies have been trying to make insurance schemes more attractive by also combining them with savings and providing returns. We would however say that taking risk coverage schemes along with the savings padded ones would be a good method.


The purpose of insurance is to cover risk. This is the fundamental principle. How insurance companies cover risk is to create a large population of customers who pay a premium to them and this collective premium is more than adequate to cover the claims for insurance. The premium computation is based on statistical probability of claims and is also dependent on having a minimum number of customers paying insurance.

When you pay premium towards risk, this is a cost that you bear. You do not get anything in return and this amount is a fee that the company takes in return for providing you the cover that you can claim in an eventuality.

However to compete and make their policies and products more attractive, insurance companies combine risk cover with savings options. These get termed as money back, endowment, pension, monthly income and others. What the company does is to take a higher premium from you, separate out the risk cover portion and use this as its fee and invest the balance into their collective fund or corpus and use this to generate returns that are then distributed to customers through monthly income, bonus and other mechanisms.

While risk cover by itself is something that you must address it might make sense in some cases to take schemes that also give you some savings potential. There are many schemes that will provide you a risk cover and also get you good returns on the savings component of your premium.

If on the other hand you are solely concerned with savings, income or pension when you are older and others, the insurance policies must be weighed against other options like public providend fund, mutual fund schemes, bank deposits and other bonds and securities.

A good insurance advisor will help you sift through the large range of schemes and policies that are available and spread across the many insurance companies that are offering them. You must define your objectives and then choose the scheme that will match these objectives.

In all of this you must remember that your primary objective while taking an insurance policy is to cover risk so that you and your family are protected. Having addressed this objective you will be right in looking at additional benefits that might come from the same product / investment.