Fixed return to beat slump
Suresh Parthasarathy With equity markets declining, insurance companies may clock slower growth rates. Until the beginning of 2008, the insurance industry as a whole was growing at 30-40 per cent over the last few years; some private insurers even achieved triple digit growth. Strong rally in equity markets over this period led to unit-linked insurance plan (ULIP) emerging as the most popular insurance product, accounting for 70-80 per cent of the new premium income. Now with the stock markets well into a protracted downturn, insurance companies have changed their strategies to stay afloat. Further, with interest rates peaking out, insurance companies are betting on debt products to lock-in funds into fixed returns. Few insurance companies such as LIC and Aegon Religare have come up with single premium guaranteed products to beat the downturn. We take a look at the salient features of the new products. LIC Jeevan Aastha Life Insurance Corporation's Jeevan Aastha is a single premium assurance plan that offers guaranteed benefits on death and maturity. This plan is close-ended and would be available for a limited period of 45 days from December 8. Features The minimum age for this plan is 13 and the maximum is 60. The minimum basic sum assured is Rs 1.5 lakh and there will be no cap on the basic sum assured. However, the basic sum assured will be available in multiplies of Rs 30,000. The policy term is available for five and 10 years. The single premium payable will vary according to the age and term of the policy. Loan facility is available after the first year of the policy. The policy can be surrendered for cash after the policy has run for at least one year. The minimum guaranteed surrender value allowable is equal to 90 per cent of the single premium paid. Death benefits If death occurs during the first year, the basic sum assured with guaranteed addition will be paid. For the subsequent period, excluding the last policy year, one-third of the basic sum assured along with guaranteed benefits will be paid. A loyalty addition other than the last-mentioned benefit will be paid on death occurring during the last year. Maturity benefit On maturity, the maturity sum assured (which is 1/6 of basic sum assured) along with guaranteed addition and loyalty addition will be paid by the company. Guaranteed addition If the term of the policy is 10 years, the guaranteed addition payable will be Rs 100 per thousand maturity sum assured every year. For a five-year policy, the same will be Rs 90 per thousand. Loyalty addition Depending upon the investment experience, the beneficiary will be eligible for loyalty addition on death during the last policy year or on the life assured surviving the stipulated date of maturity at such rate and on such terms as may be declared by the company. Comment on Plan: A calculation of yield based on the illustration and premium table provided by the company suggests that yield varies on the term and age. For a 10-year period the yield to maturity works out to 7.4 per cent and for a 5-year term, the same is 6.9 per cent for a standard life cover. If the risk premium increases due to underwriting (medical test) it might marginally reduce the yield. The risk cover offered along with the product appears attractive for the first year but from the second year, it drops to 1/3 of the basic sum assured. If one takes a basic sum assured for say Rs 3 lakh from the second year, the risk cover for the rest of the term drops to Rs 1 lakh. This policy appears attractive for an individual in the highest tax bracket. For an individual in the lowest tax bracket, a pure fixed deposit may be a better investment option for a five-year period (provided insurance is not your objective). But for a 10-year period, this scheme appears attractive for individuals in the 30 and 20 per cent tax brackets. Aegon Religare Guaranteed Return Plan Aegon Religare Life Insurance has launched Aegon Religare Guaranteed Return Plan. The offer is for a limited period. This single premium plan gives a fixed annual compounded return of 7.2 per cent. The return on maturity is tax-free and the plan comes with an additional benefit of life cover, which is five times the single premium paid. The minimum premium payable is Rs 50,000 and the maximum is Rs 4 lakh. The plan is available in two maturities - 7 and 10 years. The policy requires no medical test and the minimum age for entry is 90 days and the maximum is 45 years. Comment on plan: This product appears simple and straight forward. Irrespective of the term, it offers fixed return. In comparison to LIC Jeevan Aastha, this product provides higher risk cover, which is constant throughout the term. However, this comes with a cost. Due to the higher risk cover the yield is slightly lower than that of similar product from LIC. Further, the higher quantum of minimum premium may be a deterrent for small investors. The policy requires no medical test; however, the proposal will be accepted based on underwriting http://www.thehindubusinessline.com/iw/2008/12/14/stories/2008121450681300.htm Government cannot make man richer, but it can make him poorer --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
