If someone say that you can get 9.1% assured return on your investment for 20 years, will you not jump,,, That is what some “financial advisors” tell you about Kotak Assured Annual Income Plan. Tempted – do not be as there is catch. This return you get after investing for 10 years. So what is reality. Actually your investments earn only at 4% less than even saving banks rate.
Not convinced then please see attached calculations:
AssuredIncomePlan.xls - This is calculation for Kotak Assured Income Plan as per their site (http://insurance.kotak.com/individual/savings-invest/assured-income-plan.php)
DepositScheme-IS-02.xlsx - This is calculation for plain vanilla deposit after accounting for insurance premium for the required term plan, income tax on the interest income received, annuity and final payment guaranteed as above plan.
And without any surprise, the interest rate at which you need to invest is just 6% and not 9.1% to match the guaranteed return of the plan.
So beware of mixing investment with insurance…
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Update-01> Have taken 30% tax bracket instead of earlier 10% in order show worst case scenario.
Not convinced then please see attached calculations:
AssuredIncomePlan.xls - This is calculation for Kotak Assured Income Plan as per their site (http://insurance.kotak.com/individual/savings-invest/assured-income-plan.php)
DepositScheme-IS-02.xlsx - This is calculation for plain vanilla deposit after accounting for insurance premium for the required term plan, income tax on the interest income received, annuity and final payment guaranteed as above plan.
And without any surprise, the interest rate at which you need to invest is just 6% and not 9.1% to match the guaranteed return of the plan.
So beware of mixing investment with insurance…
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Update-01> Have taken 30% tax bracket instead of earlier 10% in order show worst case scenario.
1 comment:
I care to Disagree with you on the above data point.
The core assumption here is that if you invest the lumpsum in an FD, you will make more money. The key there is that the entire lumpsum has to be locked away for the 30 year period as per your calculation.
In the above plan, the actual cost to the proposer is 10X of the annual premium. From the 11th year onwards, the payout will take care of the premiums for the next 5 years and thereafter all the payouts are coming into your bank. If you take this at face value, if you invest a sum of 100,000 annually, your total investment will be 10,00,000 and you will get a total cash payout of approx 25,87,000 (after deducting the 500,000 you payback from years 11-15). Now if you do not anything with the cash, then the net payout is about 4.75%.
But, this money is there in your account. Hence you can always put it back into a Fixed Deposit for the balance of the tenure. Now, this would make it a like to like comparison. Even, if you put the sum back for a 7% FD, the net payback increases to at least 35,50,000. Not bad for a 10,00,000 investment at the end of 30 years. Plus the payouts are Tax free, so for someone in the upper bracket, thats worth an additional benefits compared to a pure FD.
And all of these benefits do not take into account, that if something happens to you initially, then the bank still pays out the full sum assured, unlike an FD, where you will only get back the amount deposited + interest. And this is the primary purpose of a Life Insurance Policy and not just to be the best interest earner. The latter bit, is just an added bonus.
I am not an insurance agent or broker, infact I am a consumer myself and it hurts me to see that there are statements like this being made out, which confuse genuine investors looking for a some safety for their family.
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