POS Saral Nivesh: Simple, but not good enough

Edelweiss Tokio Life has launched a new endowment policy — POS Saral Nivesh. This is the first POS (point of sale) insurance product launched after IRDAI came up with guidelines for POS Life Insurance products last November.

A POS product is a simple, plain vanilla type of insurance product where all benefits are predefined and disclosed clearly at the time of sale. It is also expected to be easy to understand.

POS Saral Nivesh adheres to guidelines set by IRDA for POS endowment products with respect to parameters such as policy term, age at maturity, maximum sum assured, etc.

The product has a simple sign-up process.

The proposal form is short, and thanks to the mandate for POS plans, the benefits are guaranteed upfront. However, returns on this product are not attractive. It is similar to what other endowment plans in the market offer.

The entry age for POS Saral Nivesh is one to 50 years. Though the maximum policy term offered is 20 years, the policy will not continue after the individual turns 65. For a policy term of 10-20 years, one can choose a premium payment term of five/seven/10 years.

The maximum sum assured is limited to ₹10 lakh. The product is available both online and offline.

Under IRDAI’s guidelines for POS Life Insurance products, the turnaround time for issuance of policy or acceptance of risk and communication of the same to the customer should not be more than two working days. Edelweiss Tokio Life says that the time taken can be reduced further, if the customer provides basic details (age, occupation, income, permanent address) and completes the KYC quickly.

At the time of signing up for the policy, you have to choose the amount you would like to have on maturity.

This can be anywhere between ₹50,000-10 lakh. This sum is guaranteed upfront.

The insurer promises to pay this sum to you on maturity or to your nominee after you during the policy term.

The policy’s premium is based on the amount of sum assured and the policy term you choose.

The risk cover offered by POS Saral Nivesh may be inadequate for most people. The maximum cover offered by the policy is only ₹10 lakh.

As a thumb rule, one’s life insurance policy should be for an amount equivalent to 10-15 times his/her annual income. Seen that way, this policy is ideal only for those who earn ₹1 lakh or less a year. If the intention is to get a life insurance cover, the best is to go for term life policies. For a sum assured of ₹1 crore, for an individual aged 35, the annual premium of a plain-vanilla term life insurance will be ₹12,000-12,500.

The guarantee on maturity benefit doesn’t make this product any better. Say, a 35-year-old male wants a cover of ₹10 lakh, his annual premium for a 10-year premium payment term will be ₹49,166. If the policy term is for 20 years, and the individual survives the term, at the age of 55, he will get ₹10 lakh. This works out to a return (internal rate of return or IRR) of 4.6 per cent only.

There are endowment policies in the market which offer a higher amount than the sum assured on the policy, on maturity. But the annualised returns on these endowment plans too is usually only 4-4.5 per cent.

Endowment products are not a good investment choice.

If you can take some risk, consider equity-oriented mutual funds. These can ensure you make an inflation beating return in the long term. If you are risk averse, you may opt for balanced mutual funds where some portion of the funds is also invested in debt.

While Edelweiss Tokio Life’s POS Saral Nivesh targets the first-time life insurance buyers, it is not a suitable product for them as it is an endowment plan. The first life insurance for anyone should be a pure term policy.

COMMENT NOW