Are  you considering guaranteed plan...? Think again!!!

After ULIP out of season, equity market’s return flat the insurer and mutual fund using “Guranteed” word to attract business. I am sure that most of you very often interested with these schemes for shake of your protecting your capital. After sometime you realize that your choice was wrong. I always recommend to all investors that please read whole offer document, search on sites or take advice from any good financial planner before any investment. No matter what is the investment amount.  After all it is your hard earned money so be prudent at the time of investment.

Guarantee is a very powerful world in any sales drive. Insurance companies offer guaranteed payout and insurance cover both to push the sales and get the benefit of investor’s mindset as these products are easily marketable with less effort. Before caught in the sales pitch you should enquire about the return of investment.

It has been very clear now after review of many these types of guaranteed insurance plan often fail to deliver the return even equal to bank fix deposit in the long run. I am not mentioning here the particular name of these types of plan as I don’t want to create any misconception or controversy but you will also believe after the decoding these plans carefully.

Guaranteed income plans are non- participating traditional plan and never disclose the investment costs and return. For example one plan says in the fine print that “ 8 % of the sum assured as payback guaranteed”. Most of the time investor think that he will get return of 8 % on the investment whereas the fine print means that there is guaranteed 8% payout of the sum assured. After many such plan’s analysis the actual net rate of return is 4%.

4% return is not great return in the 10-15 years. If you still happy with these types of return choice is yours.

The cost of guarantee is so huge and opaque that it is very difficult to arrive a net return on the investment. You are not getting only lower return you are also eroding your capital against inflation. According to me, you should concentrate on generating value from investment in the long run.

If you are conservative investor, Public Provident Fund (PPF) is good option for high tax bracket. Lower tax bracket investor may go with bank fix deposit also.

If you have some risk taking capacity you can make good capital appreciation with tax saving. ELSS mutual fund is the best option for long term investment as it offer capital appreciation with tax saving.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

One more Single Premium Insurance cum Investment Plan

One more Insurance cum Investment Plan

I have came across one article in business standard which I want share with all of you.

Life Insurance Corporation's (LIC's) 'Jeevan Sugam' is a single-premium endowment product. Since the product gives death benefit (sum assured) that is equal to 10 times the premium paid, it will qualify for tax exemptions under Sections 80C and 10(10D) at entry and exit.

Along with LIC, Star Union Dai-Ichi has a similar product to offer, which is giving a higher guarantee and a better rate of interest than LIC on Rs 1 lakh single premium paid by a policyholder. Both are single premium endowment products. The insurers have launched this products under the endowment umbrella to give guaranteed returns to customers. Additionally, there are enough single premium products available in the market which fall under the ULIP category.

The products are available to people between the age group of eight and 45 years. According to experts, individuals will have to undergo a medical test before buying this product.

Both the products are close-ended and will be available for purchase only till the end of this month. While both the products are giving a death benefit equal to 10 times the premium paid, their maturity benefits will differ. Ten years is the policy tenure.

According to the data available, if a person buys Star Union's 'Dhan Suraksha Platinum II', he or she will get a maturity benefit of Rs 1.81 lakh after 10 years (policy tenure) against Rs 1.77 lakh in LIC's 'Jeevan Sugam'. Reason: The difference in their returns is due to the different mortality tables used by both insurers. Experts say since LIC is deeply rooted into rural areas where risk to life is higher, there are chances their premium rates are higher due to that.

Pankaj Maalde, head-financial planning at Apnapaisa.com says, in the long run, Star's product will return better than LIC's because after 10 years Star Union's product will give an IRR (internal rate of return) of 5.8 per cent, compared to 5.6% returned by LIC.

Hence, one shouldn't buy these products for investment sake because their returns from the guaranteed portion are not attractive. If one is looking at good returns, they can consider investing in a Public Provident Fund (PPF) and bank fixed deposits which guarantee better returns.

While insurance is not for investment, it's still better to weigh your options in case you plan on buying one. Hence, it's better to compare insurance products, their premiums and benefits offered before buying them. Financial planners say it's an investment product and people left with no other tax-saving avenue only should make use of such products. LIC and Star Union are offering an additional benefit of 4.5 and two per cent if your maturity sum assured exceeds Rs 5 lakh. In other words, Star's benefits here is less compared to LIC.

Star Union has clearly mentioned in the product details that the product will give a tax break on the plan benefits received, under Section 10 (10D). Whereas, LIC has not mentioned this on their website.

While R R Dash, zonal manager, LIC confirms the maturity amount from this product is tax-free under Section 10(10D), we have still refrained from mentioning it, in case tax laws were to be changed anytime this year.

In the case of Star Union, the maximum amount of loan that can be availed is 75 per cent as against 60 per cent in the case of LIC. That quantum will be available as the surrender value at the time of taking the loan.

If the policy is surrendered on or before the second year is completed, the insurers will return 90 per cent of the single premium paid. Whereas, in case the LIC policy is surrendered in the first year itself, then the company is returning 70 per cent, compared to 85 per cent in case of Star Union.

While single premium products are expensive compared to pure protection plans, it makes sense not to mix insurance products with investment products. While one has to make regular annual payments in protection plans, it makes sense, as the death benefit offered by life insurers is much more than such investment-based products. If one is looking at such products purely for tax-saving purpose, then he or she can also consider tax-free bonds giving returns in the range of 7 and 7.5 per cent. Additionally, people ready to take some equity exposure can invest in an equity-linked saving scheme.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com