Max Life Insurance recently launched Savings Advantage Plan, a traditional non-linked and participating life insurance plan.

Though combo insurance-investment plans have never been in the limelight because of poor returns, they have been gaining traction in recent times for the ‘guaranteed’ returns they offer, given the fact that bank FDs have lost some sheen.

A review of the product:

What’s on offer

The policy gives the flexibility to choose the premium payment and policy terms.

For regular premium payment, one can choose a policy period of 20-30 years. The maximum age at which the policy will mature, in case of regular premium payment, is 65 years.

If you opt for a limited premium payment term (5-12 years), you can choose a policy term of 10-30 years, subject to the condition that the policy term is greater than the premium term plus five years. The maximum maturity age of the life insured here is 80.

On death of the insured, 110 per cent of the ‘guaranteed death benefit’ along with the ‘guaranteed additions’ and accrued bonuses will be paid.

The ‘guaranteed death benefit’ is the higher of 11 times the annualised premium under the policy, or 105 per cent of all premiums paid as on the date of death of the life insured, or the actual sum assured under the policy.

The ‘guaranteed additions’ are equivalent to 5.5 per cent of the policy’s cover amount (sum assured). This will be given at the end of each year for the first five policy years.

On surviving the policy term, the insured will be paid 110 per cent of the guaranteed sum assured (that is, the cover amount) along with the accrued ‘guaranteed additions’ and the bonuses, if any.

The policyholder can choose to receive the maturity proceeds (option is also available in case the payout is being made on death) in one lump sum or as equal payouts in 10 years, made monthly or annually.

The Savings Advantage Plan offers three riders — one for additional sum assured and others for cover in case of death or dismemberment due to an accident and waiver for premiums on diagnosis of critical illness.

Our take

Traditional insurance policies that combine insurance and investment in one product are not attractive because of low returns. But if you are someone looking for capital protection through guaranteed returns, these products are an option.

Generally, the IRR (internal rate of return) of traditional plans is 4-5 per cent. In Max Life’s Savings Advantage Plan, the IRR for a payment of ₹35,000 for 10 years over a 20-year policy term for a 35-year-old male comes to 5.7 per cent, assuming an 8 per cent gross return. The IRR for Kotak Life Premier Endowment, BSLI Vision Endowment +, ICICI Prudential Savings Suraksha and HDFC Life Classic Assure works out to 5.7-5.4 per cent. So the Max Life plan is attractive.

But note that bonuses on traditional plans, which make up for much of the returns, are not guaranteed.

Bonuses, only post declaration become guaranteed. And bonus rates of insurance companies have moved down in the past few years, linked to the G-Sec yield. So one needs to be wary about the returns of these products.

Another factor to note is that traditional insurance plans offer only a small life cover for the premium they ask, and may leave you short-changed on life insurance needs. So before you sign up for a traditional insurance plan, assess your life insurance need and take a sufficient cover either through the same policy or through a separate term cover.

Also, remember that if you exit early from the plan, surrender charges will pinch you hard. In traditional policies, unlike ULIPs (unit-linked insurance plans), charges continue to be front-loaded.

Other options for a conservative investor are bank fixed deposits and public provident funds (PPFs).

In bank FDs, the post-tax returns will be almost similar to what these traditional plans give, but costs are lower for pre-mature exit. In PPF, the highlight is that the cost is nil; it enjoys EEE status.

Though this rate is subject to revision every quarter, in 15-20 years, you may end up with a higher corpus.

So, it is suggested that the ₹1.5-lakh tax deduction limit under PPF be exhausted, and the surplus, if any, be invested in other tools. PPF also allows partial withdrawals.