Thread by @ETMONEY

Numbers don’t lie, but they can be deceiving.

A good salesperson can sell you a poor product by using numbers🔢to his advantage.

And you really won’t notice unless you ask the right questions.

A 🧵 on how you can be fooled with data when buying #insurance policies.👇

▪️ Number Game In #Annuity or #Pension Plans

The sales pitch goes like this:

If you invest Rs 10 lakh now, you will start getting around Rs 1 lakh a year after a decade--a 10% assured return on your #investment.

But there’s a catch.👇

It’s not 10% #returns. Here’s why.👇

For the first 10 years, there will be no payout. During this time, your #money will earn interest and grow.📈

Even if you invest in FD and earn a 5.5% #InterestRate , your money will grow to Rs 17 lakh in a decade.

So, if the #insurer pays Rs 1 lakh a year after 10 years, in simple terms, your actual return will be less than 6% (typical #inflation rate).

Moreover, had you invested Rs 10 lakh in #equities, your final corpus could be over Rs 30 lakh if it grows by 12%.📈

When you buy the 10% #return sales pitch, you ignore the potential of your money to grow with time.

Worse, you are neglecting #inflation.

If the average inflation is 6%, your money doesn’t grow at all.❎

▪️ #Endowment Plans

These plans come in many avatars - double income, guaranteed lifelong income, money back, etc.

Sold as a combo of #insurance & #investment, they typically have an emotional appeal and complicated payout structure.

The pitch goes:👇

You pay a certain amount as a premium for multiple years.

In case of your unfortunate death, your family will get the insured amount.

Otherwise, on maturity, you will get the money back with “interest and bonus”.

Here’s an example. 👇

Pay Rs 1 lakh annual premium for 12 years.

Post that, from the 13th-17th year, the insurer will pay Rs 1.3 lakh a year.

Next, from the 18th-22nd year, you will get Rs 2.6 lakh a year.

Plus, you get an additional Rs 2 lakh at the end of the 22nd year

You are paying Rs 12 lakh and getting a total of Rs 22 lakh.

Amazing, right? Nearly paisa double!!!💰

But here’s the catch. If you calculate the average annual #return, you are getting only around 5%.

Never go by the sales pitch or the numbers that the agent or advisor shows you when buying #insurance.

Always understand the payout structure.

Hope you liked this thread on insurance. Soon we’ll share similar threads for other #financial products.

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