What is it?
It is a traditional plan that guarantees you an annual income for 20 years in addition to an insurance cover.
What do you get?
You need to pay premiums for 15 years. Depending upon the premium you choose, the plan will give you a percentage of the sum assured every year for 20 years. For instance, if you choose to pay a premium of Rs 20,000, the plan will guarantee a payout of 9.10% of the sum assured every year for 20 years, but if you choose a premium above Rs 75,000, the plan will give an annual payout of 10.10% of the sum assured for 20 years. The payment begins 10 years after the policy starts. So in the first 10 years, you pay the premiums but do not get any payout; for the next five years, you keep paying the premiums and start getting the payout too; in the last fifteen years, you do not need to pay premiums but keep getting the annual payouts.
The sum assured under this plan is 10 times the annual premium. On death of the policyholder, the sum assured is given to the nominee, the annual income benefit ceases and the policy terminates.
The policy also pays a maturity benefit equal to 104-110% of the basic sum assured. The exact percentage depends on the age of the policyholder at the time of buying a policy.
Mint Money take
While getting a guaranteed payout may sound like an interesting proposition, especially for those looking for a retirement product, the costs in this policy are a big deterrent. Sample this: if a 45-year-old pays an annual premium of Rs 75,000, the basic sum assured will come to Rs 7.5 lakh, the annual income beginning from the 10th year of the policy will be Rs.75,750. On maturity the policy will give around Rs.7.91 lakh, which is a return of just 5.29%.
You could do better by investing in a fixed deposit (FD). FDs are currently returning up to 9.50% and so despite the tax disadvantage you will be able to better your return. Even the insurance component in this product comes at a huge cost. Buy a term plan for your insurance needs and invest the rest in better yielding products such as FDs, Public Provident Fund (PPF) and mutual funds. You can make systematic withdrawals from mutual funds and you can stagger your investment in FDs in such a way that you get annual payout from the maturity proceeds. You could also invest the proceeds from the PPF in mutual funds in order to withdraw systematically. If you need periodic income for your retirement years, you could consider the Senior Citizens Savings Scheme that gives 9%.