Low sum assured offsets benefits of guaranteed returns insurance policies

While life insurance policies are ideally meant to cover risk to life of the insured, many policies available in the market also have a savings component attached to them. Guaranteed return investment policies also fall in the category of life insurance policies that have a combination of savings and insurance.

These plans offer a guaranteed return, which makes them attractive to risk-averse consumers. However, the details of how the return is paid may not be very easy to understand.

The structure of these products is not standard across the industry; for instance, some plans may offer a lump sum at the end of the policy term and some could break this up into periodic payments. Further, the guaranteed amount could be defined differently as a multiple of premiums, or as a percentage of premium or sum assured.

A concern raised by financial advisors on such long-term guaranteed investment plans is the low annualized or internal rate of return on these policies. Another concern, also applicable for other investment linked insurance policies, is the lower sum assured that a consumer gets, vis-à-vis, the premium being paid.