The problem with mixing Investments and Insurance

Me and my friend Vikram help educate friends, family and colleagues on financial literacy through wealthmatix. Thanks to close family friends many of us have invested in LIC (or other) money back policies. It seemed like a good option at that time, there is risk cover and the money is returned back to us at different point in time. There is also a bonus ! to make it sound sweet. But what really is the return and what is the problem in seeing it as insurance + investment product ? Take the below challenge…

I happened to visit LIC with my brother yesterday to close his moneyback policy with 20 yrs investment timeframe. Here are the real numbers.

20k is Sum is insured. (SI).

Yearly premium — 1288

Proceeds:

5th yr — 20% of SI (4k)

10th yr — 20% of SI (4k)

15th yr — 20% of SI (4k)

20th yr — 40% of SI (8k) + vested bonus.

The bonus my bro received was 18,580.

Here is a challenge for you.

Can you calculate the returns (CAGR) of the moneyback policy? For solution watch the video

https://www.youtube.com/watch?v=6_Yt81Pt4-c

It’s a 5.9% CAGR for 20 yrs. I rest my case, the choice is yours.