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Monday, March 02, 2009

Unit Linked Plans Vs Gurranted Return Plans

In the current scenario of financial year, the sales of unit-linked plans have declined sharply hence insurers are launching only the gurranteed plans. For example:
The sucess of Jeevan Aastha prompted the LIC to launch another close ended gurranteed plan- Jeevan Varsha. Jeevan-Aastha a single premium plan with gurranted additions, early this year. During the limited offer period of 45 days till Jan 21, the scheme mopped up more than Rs 10,000 crore in premium.
ING Vysya Life, Aviva life Insurance, Aegon Religare, Reliance Life Insurance, ICICI Prudential Life Insurance and others had also launched similar gurranteed plans to attract investers looking for secured investments.
The real story:
The matter to think is Gurranteed amounts are payable only on maturity of the policy. This means basicly all gurranteed policy plans have a minimum of ten years. If you buy a gurranted plan now for investment purposes not for insurance, then after 10 years you will have to buy another with much higher premium rate.
The premium rate of a gurranteed plan is also higher than a non-gurranted plan. for ex:
LIC's Jeevan-Varsha-a 30 yr old person have to pay an annual premium of Rs 78,497 for a sum assured of Rs 5 lakh for 12 years under his plan wheras premium is only Rs 37,850 under the company's non-gurranteed money back plan.
Apart from high premium, other policy related charges for fund management, policy administration and surrender are also higher for gurranteed plans.
these gurranteed plans are mostly invest in debt instruments, given a 10-year investment horizon wether you want to lock your funds in debt instruments or equities that have historically given much higher return in long run.

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