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The market is filled with life insurance products that offer savings-cum-investment plans. These products, aside from providing a life cover, also promise guaranteed benefits to policyholders. HDFC Life Sanchay Plus, a recently launched product, is one such. It offers four benefit options with varying premium-paying and policy terms.
What’s on offer
The first option is a Guaranteed Maturity benefit — the benefit is paid at the end of the policy term as a lump sum. This option is available with a premium-paying term (PPT) of five, six and 10 years and a policy term (PT) of 10, 12 and 20 years, respectively.
The maturity benefit is equal to guaranteed sum assured plus guaranteed additions. Guaranteed sum assured is the total annualised premium payable during the policy term; guaranteed additions are calculated on guaranteed sum assured and vary from 6-14 per cent based on PPT and age of policyholder.
In the second option — Guaranteed Income — the policyholder gets a benefit in the form of a guaranteed income for a fixed period of time. There are two PPT options —10 and 12 years with a respective 11 and 13 years of PT. Under the 10-year PPT option, the policyholder will get an annual guaranteed income from the 12th to the 21st year, which is equivalent to 200 per cent or 190 per cent of the annualised premium, depending upon the entry age of the policyholder. For the 12-year PPT, the annual income is paid from the 14th to the 25th year — at 225 per cent or 210 per cent of the annualised premium.
In the third option, Long Term Income, guaranteed income is received for 25 or 30 years with a return of premium (all premiums paid) at the end of the payout period. With a 5-year and 10-year PPT (6 and 11 years PT, respectively) corresponding guaranteed income is 36 per cent and 105 per cent of annualised premium.
In the Life Long Income (minimum entry age is 50 years while in other options it is 5 years) — guaranteed income is received until the age of 99 years with a return of premium. With a 5-year and 10-year PPT (6 and 11 years PT, respectively) corresponding guaranteed income is 35 per cent and 100 per cent of annualised premium.
On death during the policy term, in the first option, the benefit is the sum assured plus accrued guaranteed additions. In other options, the sum assured is paid.
Our take
Guaranteed products usually offer meagre returns. While HDFC Sanchay Plus appears to offer high returns because of the guaranteed additions, remember that these are determined based on the guaranteed sum assured, which is low. For instance, if you are aged 30 and have chosen the six-year PPT and pay ₹1 lakh as the premium, your guaranteed sum assured is only ₹6 lakh. It is on this amount that the 6-14 per cent of guaranteed additions is calculated. Also, shorter the PPT, lower the returns.
For instance, if you pay ₹1 lakh as premium and have opted for the five- or six-year PPT, your IRR (internal rate of return) works out to 4-4.6 per cent. If you opt for the higher 10-year PPT, the lump-sum ₹24 lakh paid to you at the end of the policy term (20 years) works out to an IRR of about 5.7 per cent, slightly better but still unattractive.
In case of the guaranteed income option, for a 30-year-old with an annual premium of ₹1 lakh, and with a PPT of 12 years, the guaranteed income of ₹2.25 lakh per year paid to you from the 14th year (for 12 years) works out to an IRR of 6 per cent, a much better deal than the guaranteed maturity option.
But it is HDFC Sanchay Plus’ long-term income or life-long option (that offers return of premiums) that gives the best deal. The IRR works out to about 6.7 per cent. If you fall in the higher 30 per cent tax bracket, an IRR of 6.3-6.4 per cent may be a good enough deal.
But remember that post-office schemes such as Public Provident Fund and National Savings Certificate also enjoy tax benefits under Section 80 C and offer a tidy 8 per cent interest. Make sure you have exhausted your investment limits under these before considering other options.
Also, if liquidity is important to you, locking a large sum for a long period of time in such plans may not be the best option for you.
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