Thursday, May 31, 2012

Guarantee Returns in Insurance

FD is better

One of my clients asked :
Sir, i have saved approx 2 lacs for my son who is 14. should i put that in ICICI Prudential Life Link Super Plan with return guarantee of 14.69 after 5 years so that i have over 4.5 lacs after 5 years for him?

First of all, decide why you wantto invest in this it Protection? or Returns?.
This is not a product for someone looking for high insurance cover or longer policy term.
From your query, it looks that you are not looking at Insurnace Cover but Returns and since the plan gives Guarantee return, you are attracted.
I have always advocated that Insurance and Investment must never ever mixed. Buying these kind of investments will give you very little insurance cover besides sub optimal returns.

Please don`t misguided. For your kind information, The ICICI Pru is offering the NAV of 14.69% after 5 years. It means after 5 years your investment part will become Rs.14.69 from initial value of Rs.10.

For your investment of Rs.2L net of all the charges (mortality charges, prem. allocation charges, policy admin charges, fund management charges) your maturity amount will be less than Rs.2.75L. Yes due to partial market exposure, an upside potential is there but it`s not guranteed.

That means a return of less than 8% Compounded.
You can as well invest the same in Fixed Deposit of India's Biggest Bank, the STATE BANK OF INDIA which is offering 9.5%.,, wherein your investment of 2 lakhs will become approx Rs.3.2 lakhs.

In Simple words please don`t invest in this policy or for that matter in ANY Guarnteed return Plan of Any Insurance Company.

You can also, alternatively, invest in Income Funds of Mutual Funds and do a STP and once your investment achieves the required growth, can again do a STP into Debt Funds!!

This is a Much Better Option and Alternative compared to your original plan.
Think over it.

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