{"id":186404,"date":"2023-12-08T08:25:55","date_gmt":"2023-12-08T08:25:55","guid":{"rendered":"https:\/\/indiansapidnews.com\/?p=186404"},"modified":"2023-12-08T08:25:55","modified_gmt":"2023-12-08T08:25:55","slug":"looking-for-guaranteed-long-term-returns","status":"publish","type":"post","link":"https:\/\/indiansapidnews.com\/celebrity\/looking-for-guaranteed-long-term-returns\/","title":{"rendered":"Looking For Guaranteed Long-Term Returns?"},"content":{"rendered":"

These plans are best suited for individuals with a lower risk appetite as they provide guaranteed benefits.<\/strong><\/p>\n

The chairman of the Life Insurance Corporation, Siddhartha Mohanty, in an interview to Business Standard<\/em>, said that the insurer is keen to enhance the premium contribution from non-participating (non-par) plans in its premium mix.<\/p>\n

Buyers need to make an informed choice when opting for these insurance plans.<\/p>\n

Guaranteed-return plans<\/strong><\/p>\n

Non-par plans do not participate in the insurer’s profits or losses.<\/p>\n

“The plan is a low-risk insurance-cum-investment tool that offers guaranteed benefits at pre-determined intervals. Unlike participating (par<\/em>) plans, they do not offer bonuses or dividend payouts based on the life insurer’s business performance,” says Anup Seth, chief distribution officer, Edelweiss Tokio Life Insurance.<\/p>\n

Investors can figure out the exact return they will earn from these plans if they survive till maturity.<\/p>\n

“This is not possible in par plans where the bonus can vary from one year to the next,” says Deepesh Raghaw, a Securities and Exchange Board of India-registered investment advisor.<\/p>\n

The payout in these plans is either a lump sum and\/or a regular income. In the income option, the investor can choose monthly, quarterly, half-yearly or annual payouts.<\/p>\n

Earn tax-free return<\/strong><\/p>\n

On the higher side, these plans can offer returns in the range of 6.5 to 7 per cent plus (many plans offer lower returns as well).<\/p>\n

While fixed deposits (FDs) can also offer similar returns, their returns are taxable.<\/p>\n

“The returns from non-par plans are tax-free if the annual premium is up to Rs 5 lakh,” says Vivek Jain, head of investments, PolicyBazaar.com.<\/p>\n

FDs are subject to reinvestment risk.<\/p>\n

“At the time of renewal, the return you get from an FD could be lower if interest rates within the economy have come down. In non-par plans, the investor can lock in today’s rate for 30 to 45 years,” says Jain.<\/p>\n

Illiquid product<\/strong><\/p>\n

These plans lack liquidity.<\/p>\n

“Exiting is difficult if you want to opt out of the plan after a few years. In an FD, you can take out your money whenever you want,” says Raghaw.<\/p>\n

Investors must make sure they can afford the premium for the entire premium-payment term.<\/p>\n

These plans gain a surrender value after a minimum number of premiums have been paid.<\/p>\n

If the plan is surrendered before this period, the investor gets nothing back.<\/p>\n

And even after the policy has acquired a surrender value, it would be only a fraction of the invested amount (it increases with each year).<\/p>\n

Check the IRR<\/strong><\/p>\n

Check the payouts and the timing of the payouts.<\/p>\n

“Calculate the internal rate of return (IRR). Since it may not be possible for retail customers to do these calculations, they should seek expert help,” says Raghaw.<\/p>\n

Comparing IRRs is crucial to avoid plans with very low returns.<\/p>\n

Returns are age-dependent. “The younger the age when the policyholder starts investing, the higher the return,” says Vaibhav Kumar, head-products management, Max Life Insurance.<\/p>\n

One reason for returns being lower for older people is that they have to pay a higher mortality charge.<\/p>\n

“Make sure the IRR you are told is specific to your age,” says Raghaw.<\/p>\n

Kumar says investors should ensure the policy has life cover equivalent to 10 times or more of the annual premium. Only then will the return be tax-free on maturity.<\/p>\n

Who should go for these plans?<\/strong><\/p>\n

According to Seth, these plans are best suited for individuals with a lower risk appetite as they provide guaranteed benefits.<\/p>\n

Raghaw says they are suited for people who don’t need liquidity, and who are not concerned about earning the highest return but are keen on a guaranteed lump sum or income.<\/p>\n

“People who do not want to invest in annuities because the returns from them are taxable may also opt for these plans,” he adds.<\/p>\n

However, one point to remember is that annuities make payouts for life, while these plans have a fixed tenure.<\/p>\n

Finally, avoid a lapse in timely premium payment as this can significantly impact the guaranteed return.<\/p>\n

“Investors should carefully assess their financial capacity and commit to premiums that they can sustain over the long term,” says Kumar.<\/p>\n

<\/p>\n