BackProduct crack: Tata AIA Smart Growth Plus
Being a participating plan, the returns will depend on the bonus the insurer declares periodically
Premium
This is a traditional insurance-cum-investment endowment policy. Being a participating plan, the returns on this policy will depend on the bonus the insurer declares periodically.
What do you get?
Depending on your age, policy term and the premium that you choose, the policy will work out a sum assured or insurance cover. This sum assured is the minimum guaranteed maturity benefit also. On top of this, in each of the first five years, the policy will add 5.5% of the sum assured to the corpus on a simple interest basis. Then, from the sixth year onwards, every year, depending upon the performance of the participating life fund, the insurer will declare a bonus that is calculated as a percentage of the sum assured. Once declared, this bonus will get added to your sum assured. In insurance parlance this is called a reversionary bonus, and it will be compounded every year. From the 11th year onwards, the insurer may also declare a terminal bonus, which will be declared as a percentage of the reversionary bonuses. All these additional benefits will be payable either on death or on maturity along with the basic sum assured.
If the policyholder dies during the policy term, the policy will immediately pay the death benefit or the sum assured and additional benefits accrued till date. The death benefit in the policy is higher of the sum assured or 10 times the annual premium subject to a minimum payment of 105% of the premiums paid. This policy also gives an option to include accidental death cover, in which the sum assured would get doubled. But even under this option, the additional benefits are calculated on the basic sum assured and not on double the sum assured.
How does it work?
Suppose a 35-year-old buys this policy for an annual premium of around 1 lakh and for a term of 25 years, the sum assured will come to 15.86 lakh. In the first three years, at a rate of 5.5%, the policyholder will accumulate 4,36,150, which will be payable on death or on maturity. Assuming a rate of 8%, the policy will return a total maturity benefit of 54.18 lakh. This includes terminal payouts as well. This means a net return of 5.52%.
Mint Money take
One of the biggest setbacks of a traditional insurance-cum-investment plan is that it is an opaque structure wherein you don’t get any idea of the costs or the performance of the funds. In terms of returns, too, such policies typically offer 4-6%, which is why financial planners don’t recommend these products. However, in comparison with other endowment policies, Smart Growth Plus is one of the more cost-effective plans in the market.
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