Insurance
•01 min read
Welcome to our brand-new series, A-Zs of Insurance. In this series, we will venture into the world of insurance to breakdown insurance jargon for you, so you’re empowered to make informed decisions about your financial security.
Financial planning is an important thing to think about, especially if you’re in your 20s or 30s. Everyone needs to have a solid financial strategy in place, to ensure that they can meet their goals with ease while being able to lead a comfortable lifestyle.
The market is replete with investment options, from traditional fixed deposits to dynamic mutual funds. Did you know some insurance plans offer investment returns too? How do you pick an option that’s right for your financial needs?
Well, you can always look at one important factor, known as the ‘yield’. Let’s understand what this means and how it functions in the context of insurance.
Yield means the returns received from an investment. It measures the performance of your investment, whether it’s made in stocks, mutual funds, bonds, insurance products, etc.
Certain insurance products, like Unit-linked insurance plans, give you the opportunity to invest in the market. So, a portion of your premium is invested in market-linked funds, while the rest is used for insurance coverage.
These plans give you returns when they mature. The maturity returns will determine the yield you’ve earned when compared with your initial investment and the current market price of the investment.
2. Plans with a cash value
Some insurance plans also accumulate a cash value over time. You can utilise this extra value (or yield) to pay your premium or withdraw the same for your own needs.
3. Retirement plans
Annuity plans that offer you assured income during your golden years can also be thought of as similar to bonds that offer yields.
Make sure you read through the fine print carefully, so you can get a product that fits your personal preferences and requirements.
This can be easily done with the help of a simple formula.
Yield = Yearly Income/Value of Investment x 100
Let’s imagine that you’ve invested in a stock that pays you ₹20 as the yearly returns. Its current market price is ₹100.
So, yield = 20/100 x 100 = 20%
The concept of yield can be seen across different areas of insurance:
1. Stock market-linked products
