This is the third guaranteed returns product that I’m looking at here in the past two weeks, and I’m quite embarrassed to admit that I can’t understand how this product works.
I’ve tried to explain what I’ve understood of it but I’m certainly open to comments from people who understand this better than me.
Let’s start with the thing that is amply clear, viz. the premium payment term is 10 years regardless of how long you take the policy for.
So you pay premium for 10 years, but you can take the policy for 10, 15 or 20 years.
At the end of every five years (except for when the policy is maturing) you get 125% of the annual premium if you survive, which is called ‘Survival Benefits’ in insurance jargon.
There is this thing called guaranteed addition in this product and what they do is add 7% of the annual premium to the survival benefit at the end of the 5th year, 8% at the end of the 10th year, and 9% at the end of the 15th year.
However, if I’m reading this correctly, they don’t actually pay you these guaranteed additions at the end of the 5th, 10th or 15th year, rather these additions accrue to you, and you need to wait for maturity to get these benefits.
At the maturity, they give you the sum assured plus your guaranteed additions minus the payments they have already made to you during the course of the policy.
I think if you took a 20 year old policy, this is how your payments will look like at various years. The product brochure says that for a 35 year old, the sample premium for getting Rs. 1,00,000 insured is Rs. 6,585 which is what I have taken.
|Year||Premium||Survival Benefit||Guaranteed Addition||Maturity Benefit|
|5||Rs. 6,585||Rs. 7,408||Rs. 461 (7% of premium)|
|10||Rs. 6,585||Rs. 7,408||Rs. 527 (8% of premium)|
|15||Rs. 7,408||Rs. 592 (9% of premium)|
|20||Rs. 1,00,000 + (Rs. 461 + 527 + $s. 592) â€“ (7,408×3)|
Iâ€™m quite uncertain about the guaranteed addition in this product mainly because Iâ€™m unable to understand if they are going to give you 7% of the premium at that year or will they add that 7% for every year that you have held that policy? Similarly for 8% and 9%?
Usually, I shy away from writing about products where I have so many questions myself but I see that almost every website that has written about them has reproduced the press release with a few edits, and don’t do much to advance the discussion.
I hope this will post will at least arm you with the right set of questions to ask your agent if they approach you to sell this product.