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Life insurance plan with assured growth of sum assured

LiveMint logoLiveMint 03-10-2017 Deepti Bhaskaran

Edelweiss Tokio Life-Smart Lifestyle is a traditional insurance plan. A participating plan, its investment returns depend on the annual bonus the company declares. It also comes with guaranteed additions that increase the maturity corpus over time. 

Your premium depends on factors such as: sum assured, your age, policy term, premium-payment term, and the options chosen. 

There are two options in the plan. The base plan works like an endowment plan. It pays the death benefit if a policyholder dies during policy term, and the plan terminates.

If policyholder survives the term, it pays the maturity benefit. The other option—family protection plan—works like a child plan that pays the death benefit on death of policyholder; and on maturity it pays the maturity corpus also, as planned. 

In terms of investment benefits, apart from the other benefits that come with participating plans, every 5 years it increases the sum assured. At the end of the 5th year it adds 10% to the sum assured, 15% at the end of 10th, 20% at the end of 15th and 25% at the end of 20th. So, if you choose a policy term of 15 years, you are entitled to an additional 45% of the sum assured. If you choose a 20-year policy, the add-on is 70%. 

Also, every year the policy adds 2% to the sum assured (which is inclusive of the periodic increase), which is again payable on maturity. “Investors like guaranteed returns but they also expect an upside. This plan has been designed keeping the two needs in mind,” said Subhrajit Mukhopadhyay, chief and appointed actuary, Edelweiss Tokio Life Insurance Co. Ltd. 

In terms of insurance benefits under the base plan, on death of policyholder the beneficiary gets higher of 10 times the annual premium or the sum assured plus the additional sum assured that is added every 5 years. The additional sum assured is given in full regardless of when the death occurs. In addition, the beneficiary will also get accrued bonuses and accrued guaranteed additions. In the family protection plan, on death the beneficiary will get higher of 10 times the annual premium or the sum assured plus additional sum assured. Also, the policy will continue as the insurer will foot the premiums on behalf of the deceased policyholder. On maturity, the beneficiary will receive all the benefits as planned, i.e., the sum assured, accrued additions, additional sum assured and accrued bonuses. 

Suppose a 35-year-old buys a policy with a 20-year term, and a premium payment term of 12 years with an annual premium of Rs1 lakh. The sum assured under the base plan will be about Rs7.99 lakh.

The guaranteed additions—2% of the sum assured plus additional sum assured total to Rs9.43 lakh. Assuming an 8% return on the par fund, the sum of accrued bonuses on maturity will be Rs10.55 lakh: a total corpus of Rs27.98 lakh or a net return of 5.8%. 

The good part about this policy is that other than bonuses, it also gives guaranteed returns. In terms of costs, it is on par with other traditional plans in the market. But is it good enough? “You need to unbundle the product and look at individual goals,” said Suresh Sadagopan, a Mumbai-based financial planner. “In terms of insurance it still doesn’t beat a term plan and in terms of investments, these products mainly invest in debt products; and given the costs in the plan, usually give a return of about 5-6%. A PPF (Public Provident Fund) in comparison gives a higher return of 7.8%. This plan, like any other bundled traditional plan, doesn’t serve the purpose of insurance or investment returns. Investors can give it a miss unless one is so indisciplined that she needs the inflexibility and surrender penalty of a traditional plan to keep investing,” he added. 

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