protection
Insurance buys peace, not returns
The rule
Insurance is protection you hope you never use. Judging it by its 'return' is the wrong question, and it leads you straight into mis-sold products.
Where it flips
Peace has a price, and buying too much of it is also waste. Cover you do not need, add-ons that never pay. Protect against the losses you cannot absorb. Pay the small ones yourself.
Housel splits the two jobs money can do: grow, and protect. Insurance is the protect job. You pay a small, known cost to remove a large, unknown one. The best result is that you never claim. The moment you ask 'but what do I get back?', you have walked into the salesman's trap. The honest answer is: peace of mind, and a payout only if the worst happens. Term and health cover do this cheaply. Insurance mixed with investment does it dearly and badly.
A worked example
A ₹1 crore term plan for a 30-year-old costs about ₹12,000 to ₹16,000 a year, and pays out if they die. An endowment plan with the 'same' cover costs many times more, and returns only about 5%. [illustrative]
How to spot it
- ·protection and investment kept apart
- ·cover judged on the payout, not a return
- ·a small premium next to the big risk it removes
Morgan Housel · The Psychology of Money (and essays)