In the ear of high interest rates and virtual monopoly of Life Insurance Corporation of India (LIC), the traditional endowment and money-back plans were the only insurance products available in the market. However, advent of private sector firms saw a deluge of market-linked plans, and today there is no insurer that does not offer a unit –linked insurance plan (Ulip). Now the insurance industry appears to be coming full circle.
What’s in store?
Aviva Life Insurance, which has about 11 Ulips, has now launched a traditional plan-Dhan Vriddhi. The plan addresses not only the savings and protection angle but also ensures liquidity at regular intervals, making it a money-back plan by nature. Another striking feature of the plan is regular’ guaranteed additions’.
In these times of falling returns, when even LIC is unable to maintain its bonus rates, plans with guaranteed additions may be tempting for many. In fact, LIC lowered its bonus rate from Rs.45 in 2004-05 to Rs.42 in2005-06 for every Rs. 1,000 sum assured.
The Aviva policy is available for people from 13-55 years for a term of 10-25 years. The maximum age at maturity can be 70. also, premium will not be charges in the last five years of the term. The customer will get the guaranteed addition of Rs 70 per Rs. 1,000 sum assured for every completed year even during this period.
The real picture
However, the actual return from a life insurance policy is estimated by its internal rate of return (IRR),which gives the present value of future income from an insurance policy. For example, if a 30-year-old takes a plan, for Rs. 5 lakh sum assured for a 20-year term, he will have to pay an annual premium of Rs. 49,835 for 15 years. Twenty per cent of the sum assured is paid every five years.
The guaranteed additions are paid together when the policy matures. So, the total amount received on maturity comes to Rs. 9 lakh, delivering an IRR of about 1.86 per cent. This lags behind 8 per cent returns from a tax free 15-year PPF investment.
No comments:
Post a Comment