Today I got one email from one of my visitor of website, requesting me to give impartial view of HDFC standard life insurance product - Savings Assurance Plan. Instead of giving answer individually, I decided to publish an article on inside story of this product for the benefit of all.
To get the truth of any insurance product, it's better to download its brochure from the official website of the company. So, I get it from http://www.hdfcinsurance.com.
After going through the brochure, I analyzed the following points.
The product is a simple plan - pay the premium and get the bonus as decided by the company every year. Let me explain this point little more.
As per brochure, the premium for a person age 40 years, term 10 years - the annual premium would be Rs.12,016 for a Sum assured (S.A.) of Rs. 1,00,000.
Now, this person will pay total of Rs.12,016 * 10 = Rs.1,20,160 in 10 years. Generally, the customer always pays more premium than the S.A. in such plans.
The company will declare bonus every year, will be accumulated and will given on maturity. The rate of such bonus is not defined in the brochure and will be decided every year by the company.
One very important point - which every customer MUST know. The company will not give interest on bonus.
How?
Let us say, in the first year, the customer has paid Rs.X as a premium to the company and at the end of the year, the company declares Rs.Y as a bonus. Remember, the bonus will be declared and NOT to be given to the customer. That bonus amount Rs.Y will be given to the customer on maturity WITHOUT any interest.
Similarly, no interest on subsequent year's bonus will be given to the customer.
The interest on bonus will be with company itself.
Now, let us try to calculate the rate of bonus which the company can give. In India, in the present scenario, no one can get more than 8% p.a. interest on any Govt. scheme / bond. Same rule applies to companies also. Even, if the company is getting 8% p.a. interest, it has give at least 2% to its agent as renewal commission, 1% will be with company to meet their expenses. So, finally, the customer will not get more than 5% simple interest p.a.
Insurance
On death during the first year, a sum equal to 80% of premiums received is payable. On death after the first year and during the policy term, all premiums paid to date will be returned with compound interest calculated at 6% per annum, subject to a maximum of the Sum Assured plus Reversionary Bonuses declared till date.
So, there is NO insurance in the 1st year.
Partial Withdrawal
The plan does not allow the customer to withdraw any amount from its plan as partial withdrawal. So, the customer has to look for other options in case of financial crises for some cash.
Summary: I do not see any major positive point in this plan. If you do not want to take much risk with your money, you can go for some good balanced mutual fund, where the major portion of your money will be invested in debt and not in stock market. You can also consider investing in PPF and Gold. They give you steady return in long term. Now-a-days, you can even buy Gold in your demat account which is safe and transparent.
If you get any queries related with this article, please feel free to post that in comments section below.