How much returns can you expect from your life insurance policy; how to calculate
The formula for IRR = IRR (B2: B12)
The only option for a buyer is to do the calculation himself. The IRR (internal rate of return) calculation can tell you the returns that a policy offers.
The concept of IRR is very complex and takes into account the inflow and outflow to arrive at the final figure. However, this complexity can be managed by using the inbuilt IRR function in MS Excel (see graphic).
In the example considered here, the annual premium of Rs.25,000 is paid over 10 years and the maturity amount is Rs.3,50,000 in the 11th year. The IRR in this case is 6.04%.
The outflow (premiums) are in negative, and inflow (payments and maturity amount) are in positive.
In case the payments are made at different times of the year, the XIRR function can be used. This takes into account the exact date of inflows and outflows, and accordingly calculates the returns.
So, the next time somebody wants to sell you an insurance policy, calculate the returns before signing on the dotted line.
