Thursday, August 23, 2012

Product Review


BAJAJ ALLIANZ CASH RICH INSURANCE PLAN

While watching TV the other day, I saw an advertisement about Bajaj Allianz Cash Rich Insurance Plan- a plan which exhorts audience to retire rich rather than just retire.

What a wonderful company, I thought, which now offers “CAREFREE RETIREMENT” to all and sundry. I decided to subscribe to the policy immediately, after all who would not like to retire rich carefree!
Here’s my holy grail of retirement I said to myself. I went online and googled Bajaj Allianz and sat down to do a little fact finding about the plan. 

I was a little apprehensive about the premium that I would have to pay, but then darr kea age' jeet hai.

The plan involved cash payouts in 3 tranches:-
·       Accumulated reversionary bonus at the end of the PPT(premium payment term)
·     Cash back period (a period after the end of PPT where the company pays guaranteed        Cash back @ 5% of SA.
·      Sum Assured plus Terminal bonus if any on maturity

How does the plan work?

The plan is a limited premium payment traditional (participating) endowment policy. The whole policy term consists of 2 phases (to be selected by the insured):-
§  Premium payment term; and
§  Cash back period

At the end of the PPT, the accumulated compound reversionary bonus is paid out. From the next year till maturity. Cash back benefit of 5% of SA plus annual cash bonus (if any declared by the company) is payable.

On maturity, the SA plus terminal bonus if any becomes payable.            

The features of the plan for me were as under:-

Ø  Age at entry (for me)                                    45 years                              
Ø  Premium Payment Term                             20 years
Ø  Cash back period                                        25 years
Ø  Plan maturity                                                 45 years
Ø  Sum Assured                                                Rs. 25 lacs

  
The illustration as generated disclosed the total annual premium payable by me as Rs. 1, 66,402.00 and the total maturity proceeds accruing to me till age 90 was likely to be Rs.75.27 lacs

Observations:-

On analyzing the policy in a little more detail, I came to know that over the next 20 years I would be paying Rs. 33, 28,040 as premium---for a Rs. 25 lacs sum assured policy.

Feeling a bit let down by the initial analysis, I decided to calculate the IRR (internal Rate of Return). It came to an abysmally low at 3.04%--even less than what my savings bank offers me.
  
Conclusion:-

At the outset sapnaa mera toot gaya….. (My dreams alas have been broken).

The first and foremost conclusion that I arrived at with a very heavy heart was that my retirement will not be as carefree as the company claims to be. That this plan is not worth subscribing for following reasons:-

§  The annual payouts of 5% of SA may not be sufficient enough to meet my post retirement requirement.
§  The payouts (in the form of reversionary and annual cash back) may not be worth the amount if inflation is factored.
§  In absence of the cost structure of the policy, it is not be possible to find out the actual premium invested as per IRDA mandate and hence the reversionary bonus which the company hopes to accumulate may fall short of target.
§  Finally, anybody but the life assured can hope to retire rich by buying this policy.

Final Word: - AVOID.



Disclaimer:-
The views expressed as above are the author’s own personal views. The author writes articles about Finance and Investment/Insurance topics; however his articles do not create a financial adviser/client's relationships. These articles are meant for information purposes and are not substitute for the advice of an experienced financial adviser.

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