Like others, Bajaj Allianz has launched Cash Rich, a money back insurance policy. The returns will be meagre—in line with traditional plans, unless the bonus is substantial
Raj Pradhan
Bajaj Allianz has launched its Cash Rich traditional plan for the conservative investor. Life insurance companies are launching new traditional plans with the business shifting away from unit-linked insurance plans (ULIPs). The returns will be in line with other traditional plans, unless there is substantial bonus given under three categories of vested bonus at the end of the premium payment term (PPT); non-guaranteed cash bonus given each year in the cash-back period and the terminal bonus.
The returns have to be looked with perspective that the policy offers life insurance and covers the risk of death.
In case of the unfortunate demise of policyholder during the PPT and provided that all due premiums have been paid, Bajaj Allianz will pay the sum assured plus the applicable bonuses to the nominee. If the death is during the cash-back period, the nominee will get the sum assured, the interim cash bonus (if any) and the terminal bonus (if any).
The risk coverage is meaningful for the policyholder during the PPT, as the fund value after PPT will be enough to pay the sum assured if the policyholder expires during the cash-back period.
Parameter -
Moneylife calculated the premium for a 30-year-old male, for a sum assured of Rs10 lakh, PPT of 10 years, cash-back period of 10 years and a policy term of 20 years.
The yearly premium (including taxes) will be Rs1,12,831 to be paid over 10 years. The total premium payment will be Rs11,28,310. The vested bonus at end of the PPT is unknown, but as per IRDA (the Insurance Regulatory and Development Authority) guidelines of @6% and @10% p.a., the bonus is Rs2,18,994 and Rs4,10,599, respectively.
During the cash-back period (years 11 to 20), the company will give guaranteed 5% of the sum assured. In this case, it will be Rs50,000. The non-guaranteed cash bonus (@1% of sum assured) shown by the company is Rs10,000 for the above example. On maturity, the policyholder gets a sum assured of Rs10 lakh and terminal bonus (if any).
Under the best circumstances, if the investor pays Rs11,28,310 in 10 years, he receives a vested bonus at the end of the PPT of Rs4,10,599 (i.e., 10%). In this example, the yearly cash back was Rs60,000 (including non-guaranteed cash bonus @1% of sum assured) and Rs10 lakh at the end of the policy term of 20 years.
The historical terminal bonus in the industry has been Rs40 per Rs1,000 of the sum assured. It works out to Rs40,000 paid in Year 20. The IRR (internal rate of return) for the investor will be 5.5%. The product is covering life insurance-and hence, part of the premium that you pay, goes for covering the risk.