Summary: Insurance-cum-Investment products, also known as Money-Back or Endowment Plans, usually perform poorly on both fronts. Bajaj Allianz’s Invest Assure is no exception. Investment returns after adjusting for the cost of insurance are about 6.23%. You can get better value by investing the same amount in a PPF and purchasing insurance separately.
Reviewing investment products is not an easy job, for two reasons:
- People who take you seriously will put their hard earned money where you tell them to. I don’t need that kind of pressure in my life.
- The work is painful. The policy documents and brochures don’t tell you everything you need to know. So you call a sales rep, who tries to sell you something else. You speak to his senior, and she tries selling you something else. You know the drill. You’ve been through it.
The Bajaj Allianz Invest Assure policy, suggested by Shashidhar (one of two people who read our last review; the other being yours truly), is the flagship insurance-cum-investment/money-back plan of Bajaj Allianz.
Like the ICICI Pru Assured Savings Insurance Plan that we reviewed, it promises you the security of insurance with the promise of good returns.
And like the ICICI plan that we reviewed, it delivers on neither.
Here’s the standard conversation with a money-back plan salesperson:
To help educate the “I get investment and insurance?! Shut up and take my money!” train of thought, investment returns were calculated by subtracting the premium of term insurance from the premium of money-back insurance. Term insurance is pure, old-fashioned insurance: your nominee is paid if you die, and the insurance company keeps the money if you don’t – similar to the insurance you buy for your car.
For this review, I used the following parameters for the Gold variant of the Bajaj Allianz Invest Assure policy:
Here’s how the policy works:
The brochures only mention that the vested bonus and terminal bonus are announced annually on the basis of how well the company’s (in this case Bajaj Allianz) investments have performed, but there is no transparency, or clear relationship between them. The Insurance Regulatory and Development Authority of India (IRDAI) requires insurance companies to provide data for returns of 4% and 8%. In the case of Bajaj Allianz, however, this data reflects the performance of the company’s total portfolio and not the returns given to the investor. A 4% return for the company, for example, generates zero vested and terminal bonus for the investor. There are no public records of how their investments have performed in the past, and how much bonus they have declared. I had to pry that information out of reluctant sales representatives by calling them persistently.
The 2.75% vested bonus is on the sum assured, starting from the first year and compounding thereafter. The 0.5% terminal bonus is also on the sum assured, but is a one-time bonus. It seems reasonable to take these as standard rates since company-wide returns of 9.5% have been, according to the representative on the phone, standard.
This, then, is what the maturity benefit looks like:
You pay Rs. 1,45,281 annually for seven years, and nothing for the next eight.
You live at the end of the 15 years: You get Rs. 20,24,720
You die during the 15 years: Nominee gets Rs. 27,00,000
Now, consider this as an investment. As mentioned before, the cost of a term insurance policy with a Rs. 27,00,000 death benefit from Bajaj Allianz itself is Rs. 3,214 a year. Subtracting this from the annual premium of Rs. 1,45,281 gives us Rs. 1,42,067, which goes toward investment annually for 7 years. Hence, the effective rate of return upon maturity comes to about 6.23% per annum. Even a PPF at 8.1% assures a good 2% more!
Now, suppose, after accounting for insurance, that the amount is put into a PPF. The invested amount (up to Rs. 1,50,000) and the returns for PPF are tax free, just like for insurance, so the “But you can avail tax benefit under 80C for insurance” argument is invalid. The returns look something like this:
*PPF rate used is 8.1%, which is the current rate
Our recommendation : Buy a term insurance plan with the same Death Benefit and invest the rest in a PPF. The returns are higher, *and *guaranteed, *and *still tax-free.
- To simplify calculations, detailed taxes and cesses have been ignored. The calculations are based on a 15 year policy bought by a 27-year old male with the premium being paid for 7 years.
- The Bajaj Allianz Invest Assure Plan is an endowment (insurance-cum-investment) policy offered by Bajaj Allianz. The brochure can be found here, and the specimen policy document can be found here.
- The Bajaj Allianz iSecure plan, which is a term insurance plan with an annual premium of Rs. 3214 for a death benefit of Rs. 27,00,000 for a healthy 27 year old male, can be found here.