The Hindu Business Line : SBI Life Dhana Vriddhi

JUST when you thought that guaranteed return insurance products were a thing of the past, SBI Life has launched a plan that promises just that. Called Dhana Vriddhi, the plan assures an annual guaranteed compound return of 5.75 per cent on the sum assured over a five-year duration.

Plan features: Dhana Vriddhi is a single premium plan with the maturity proceeds to be received at the end of five years. The premium to be paid is 99.5 per cent of the sum assured (if lower than Rs 5 lakh), a rate that decreases as the sum assured goes up.

In case the insuree dies in an accident within the first policy year, the beneficiary would receive the sum assured; any other cause of death in the first policy year would result in the nominee receiving a refund of the single premium paid.

From the second policy year onwards, death — irrespective of the cause — will entitle the beneficiary to the sum assured and the guaranteed addition for each completed policy year.

On the policyholder surviving till maturity, he will receive the sum assured along with the guaranteed additions.

Surrender value: The policy acquires a surrender value after six months are completed (surrendering the policy before this period will lead to the policyholder forfeiting his entire investment). Surrender payouts have a graded structure; the closer the surrender is to the policy's maturity, the higher the payout.

Riders: No riders can be attached to this plan.

Tax benefits: Single-premium plans have taken a knock since the 2003 Budget capped the deduction that can be claimed at 20 per cent of the sum assured.

Though the latest Budget permits an investment of up to Rs 1 lakh against which a deduction can be availed of, the 20 per cent cap still remains in force. As a result, an investment in such a plan may not be attractive from a taxation standpoint.

To illustrate, if one opted for a sum assured of Rs 1 lakh under this plan, the premium outgo would be Rs 99,500, against which a tax deduction under Section 80 C can be claimed only for Rs 20,000 (20 per cent of the assured sum).

It is also important to note that in case the policyholder surrenders the policy within two years of its commencement, the tax break provided would stand annulled.

Further, while the payout on death is completely tax exempt, maturity benefits are taxable.

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