Bank RM is pushing a savings plan with Rs 10L life cover. Is this a good alternative to mutual funds?

Question

I am 28 and looking to save taxes while investing for the long term.

My bank relationship manager suggested a plan where I pay Rs 1L/yr for 10yr.

I get a Rs 10L life cover and guaranteed tax-free returns at the end.

It seems like a win-win compared to buying a separate term plan and mutual funds. Is this a good idea?

Mohan Gupta · Accepted Answer

This is a classic case of misaligned incentives where products are pushed rather than bought.

Misselling and unfair business practices now make up to 22% of total complaints against life insurers. The reality is that a Rs 10L life cover is negligible and offers no real protection for your family. The true measure of protection is pure term insurance where you should be buying a cover that is 10 to 15 times your annual income.

These investment-linked products also suffer from a severe persistency problem. The average 5yr persistency ratio for top life insurers hovers around 50% meaning half the people realize it is a bad deal and stop paying. If you ask the RM to disclose the commissions on the first page of the policy you would likely see that 30% or 40% of your first-year premium is going straight to them.

You should always separate your investments from your insurance. Buy a pure term plan for your life cover and direct your savings into mutual funds for actual wealth creation.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Bank RM is pushing a savings plan with Rs 10L life cover. Is this a good alternative to mutual funds?

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