If you wish to enjoy tax-free returns with life insurance and you have a surplus to invest, your time is running out. After March 31, the existing single premium insurance plans will not be eligible for tax benefits.

This makes it a good time to pick up plans such as those from LIC and IDBI Federal Life which are open now.

Jeevan Vriddhi

LIC Jeevan Vriddhi is a single premium policy with a 10-year term that offers a guaranteed return on maturity with loyalty additions if possible. The guaranteed additions are determined by the age of the policyholder and the amount of single premium paid. The death benefit is equivalent to five times of premium paid.

For an investment of Rs 99,500 inclusive of service tax, the guaranteed maturity benefit could range from 4.66 to 7.06 per cent a year. This is determined by the age of the policyholder at the time of investing. If the policy declares loyalty addition the returns are likely to go up.

IDBI Bondssurance

IDBI Bondssurance is a single premium plan with maturity options from 5 to 10 years. At the end of the chosen period, you will receive a guaranteed maturity amount. In case of death before the maturity date, a benefit will be paid at five times of the premium paid. The premium you pay is eligible for deduction under Section 80C. The maturity and death benefits are also tax exempted.

For an investment of Rs 1 lakh (inclusive of service tax) the guaranteed maturity benefit for a 10-year plan will result in returns from 5.48 per cent to 7.67 per cent. For a 5-year plan it will range from 2.78 -6.7 per cent. The maximum age at entry will be 55. Returns will be lower for older investors as premiums taken towards life cover will cut into the corpus.

Who should buy

If you are an investor without adequate insurance and are willing to sacrifice some returns for the risk cover, these plans are suitable.

Single premium plans are also suitable for those with investment horizons of over 10 years.

For people with shorter time frames to invest, tax-saving deposits from banks are better.

This is why. If you are in the 30 per cent bracket and invest in a SBI tax saving deposit for 5 years, your effective annual return post tax will be 13.7 per cent irrespective of your age. Your interest income will be taxed at your applicable tax rate.

In the case of the single premium plans though, the effective returns will vary based on age. For an individual at 50 in the LIC and IDBI products who takes the 10-year plan, the return will work out to only 5-5.5 per cent a year. For an individual in his 30s, it will be higher at 7.67 per cent(IRR 11.6 per cent), due to lower charges for the insurance cover.

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