Investment linked life insurance has become a popular product among investors looking to get market linked returns along with insurance protection. The key benefit of such policies is that part of the premium gets invested in equity and debt funds, based on policyholder’s choice. This provides opportunity for wealth creation over long term. However, projected returns and premium payments depend on multiple factors. This is where investment linked insurance calculators come in handy. These online tools allow you to estimate returns and premiums under different scenarios. Using such calculators properly can help make an informed decision regarding these policies. This article explores how to use investment linked life insurance calculators effectively.
Understand how investment linked insurance policies work
Investment linked insurance plans are different from traditional life insurance policies. Here, the premium paid is partly allocated for insurance cover based on sum assured, and remaining portion gets invested in market linked funds as per policyholder’s choice. Returns generated from investments accumulate over time and enhance the fund value. While insurance protection continues throughout policy term, accumulated fund value is paid out on maturity. So these policies provide twin benefits of market linked wealth creation and life coverage. Returns earned depend on performance of chosen funds. One must understand working of these policies before using premium and returns calculators.
Key inputs needed for investment linked insurance calculators
To arrive at projected premiums and returns, the calculators take certain key inputs from user. These include – premium payment mode and term, premium allocation charge, sum assured, policyholder’s age and gender, assumed rates of return for various funds, fund management charges etc. Different companies have varying product features, charges structure and investment fund options. Hence it’s important to find out relevant details from product brochure and insurer’s website before using the calculator.
Project returns under optimistic, moderate and pessimistic scenarios
Market linked plans do carry some inherent investment risks. Equity funds can be volatile in short term. Hence projected returns may not be realized in practice. A prudent approach is to estimate returns under three scenarios – optimistic, moderate and pessimistic. Optimistic scenario assumes equity funds will generate around 12% CAGR returns. Moderate scenario considers around 8-10% CAGR from equities. And pessimistic scenario factors poor equity markets with around 5% CAGR returns. This provides a likely range of maturity fund value. Comparing projected returns from multiple insurers can help identify better investment linked policy.
Calculate premiums needed to achieve target corpus
The calculators also allow calculating the premium needed to achieve a desired maturity corpus target. For this, user needs to input the target amount, premium payment term, product charges etc. The tool then computes the annual premium required to achieve that corpus based on assumed rates of return. This helps plan the finances better. Although past performance is no guarantee of future returns, moderate return assumptions provide a reasonable estimate.
Investment linked life insurance calculators are useful tools to estimate projected premiums and returns under different conditions. To get meaningful estimates, use realistic assumptions on returns and charges. Evaluate multiple insurers and aim for better returns. However remember that actual corpus depends on future fund performance.