NAME OF THE PRODUCT
Bharti AXA Life Wonder Years Retirement Plan
WHAT IS IT
It is a traditional plan that helps you build a retirement kitty. You need to choose the amount you would wish to get on maturity, known as vesting in insurance parlance, and the policy will throw up a premium that you will need to pay every year to get that. Since it is a traditional plan, it invests very little in equity.
WHAT DO YOU GET
On maturity, you get the retirement kitty you had opted for. However, only one-third of that money is at your disposal. You need to use the rest to buy an annuity, a pension product that pays you periodically.
On death of the policyholder during the term, this policy assures a payment of 108% of all the premiums paid till the time of the death. Wonder Years also offers a retirement bonus, but that’s not guaranteed and is subject to the company declaring a bonus. Once declared, the bonus becomes guaranteed and is given to you along with the retirement kitty on maturity. This bonus is not payable on death of the policyholder during the term.
WHAT ARE THE COSTS
Traditional life insurance policies don’t disclose costs and hence it is difficult to gauge them.
WATCH OUT FOR
Though it looks good on the face of it since it gives you what you require, the plan fails the litmus test of costs. For example, a 35-year-old wanting a retirement corpus of Rs20 lakh at age 60 will have to invest Rs63,920 every year for 25 years. A simple internal rate of return calculation shows his return would come to just around 2%. However, if you factor in the non-guaranteed bonuses, then assuming the bonuses were given when the invested corpus was growing at 6%, the net return would come to about 5% and at 10%, it would be 8%. Since the product invests largely in debt products, a 10% rate of return seems unreal. Industry pegs their average return at around 7-8% and hence you could expect a net return of 5-6%, including the bonuses.
MINT MONEY TAKE
Building a nest egg for retirement is purely in the realm of investment and there are pure investment products that give you better returns. Consider investing in a Public Provident Fund, which gives you a guaranteed and tax-free return of 8%. National Pension System is another cost-efficient vehicle to help you build a retirement kitty. For those who are aggressive investors and want to invest in equity, mutual funds are a good bet. Look at our Mint50 suite to take a pick.