Bharti AXA Life Secure Savings Plan: Is guaranteed 10% additions a correct representation?
Bharti AXA Life’s new plan provides guaranteed additions of up to 10% of each year’s cumulative base premium paid. Find out how it translates to returns of less than 4.5% p.a. for a 20-year policy. If IRDA really wants to bring transparency, it needs to start with this product
Bharti AXA Life Secure Savings Plan offers guaranteed additions of up to 10% of each year’s cumulative base premium paid along with life cover to the customers. While ‘10%’ may give a perception of good returns, it is far from reality. Does a layman understand that the actual returns in this product will be less than 4.5% p.a. for 20-year policy? An average customer simply cannot do calculations of real returns, which is dismal in this case. The insurance company is right on purported guaranteed additions, but Insurance Regulatory and Development Authority (IRDA) needs to usher in simplicity for a layman.
The press release quotes Bharti AXA Life, MD and CEO, Sandeep Ghosh, saying,
“Given the volatile investment scenario today, consumers are looking for safe investment opportunities that provide guaranteed returns. The new plan provides guaranteed additions of up to 10% of each year's cumulative base premium paid.” The real returns are never mentioned in the brochure or any other document. IRDA should make the insurance companies highlight the expected returns, especially as this product only offers guaranteed additions without any non-guaranteed additions.
A policyholder of age 35, paying annual premium of Rs20,000, will get a Sum Assured (SA) of Rs235,073, assuming good health. The guaranteed addition percentage of 10% of each year’s cumulative base premium will be Rs420,000. Maturity benefit will be SA + Rs4,20,000 or Rs6,55,073. The Internal Rate of Return (IRR) will be just 4.49%. For a higher age, the IRR will reduce as the premium will increase for the same SA, for covering the higher life risk. Moreover, the guaranteed additions can be less than 10% depending on premium and policy term as shown in the table.
The insurance cover is higher of SA or 105% of premiums paid along with accrued guaranteed additions is payable on the death of the life insured. The maturity benefit is SA along with guaranteed additions is payable at maturity of the policy. The maximum maturity age is 70 years.
The minimum annual premium is Rs18,000 for a 15-year policy and Rs12,000 for 20-year policy. There is discount of 3% and 5% for policy term of 15 and 20 years respectively for premium of Rs1 lakh or above. The product comes with optional riders of Accidental Death and Disability benefit, Critical Illness benefit and Waiver of Premium.