ICICI Prudential Future Perfect is a traditional life insurance plan. A part of the maturity amount is guaranteed while the other part is variable and linked to the investment performance. In a way, it is a hybrid product where it retains some features of both non-participating and participating traditional plans.
Let’s find out more about ICICI Prudential Future Perfect and see if this plan should figure in your investment and insurance portfolio.
ICICI Prudential Future Perfect: Salient Features
- Limited premium payment plan.
- A mix of participating and non-participating life insurance plans. It is NOT a linked plan or a ULIP.
- Guaranteed Maturity benefit, Guaranteed Additions every year
- Compounded reversionary bonus every year and terminal bonus in the year of maturity/demise. These bonuses can vary and not guaranteed.
ICICI Prudential Future Perfect: Death Benefit
Minimum death benefit (Sum Assured) is 10 times the annualized premium. This ensures that your maturity proceeds are exempt from tax.
Death Benefit = Higher of (Sum Assured, Guaranteed Maturity Benefit) + Accrued Guaranteed Additions + Accrued Subsisting Reversionary Bonus, if any + Terminal Bonus, if any
I will explain these terms in the next section.
ICICI Prudential Future Perfect: Maturity Benefit
Maturity Benefit = Guaranteed Maturity Benefit (GMB) + Accrued Guaranteed Additions +
Subsisting Reversionary Bonus, if any + Terminal Bonus, if any
Guaranteed Maturity benefit (GMB) is known upfront. It depends on your age, policy term, premium payment term and gender. It may even be lower than the Sum Assured. Now, I could not figure out how GMB is calculated. The matrix was not shared in the brochure or policy wordings. However, you can expect GMB to increase with increase in annual premium and premium payment term and decrease with increase in entry age. The good part is that you know the GMB upfront. So, you don’t have to break your head over this.
Guaranteed Additions (GA), as the name suggests, are guaranteed. You know upfront the rate at which these accrue. During the premium payment term (PPT), the GA will accrue on the premium payment. After the end of premium payment term, the GA will accrue at the beginning of the policy year.
Subsisting Reversionary Bonus is announced every year and gets added to the policy. The quantum will depend on the returns earned by ICICI Prudential Life Insurance under this policy. Though this bonus is announced every year, it is paid only at maturity or at the time of demise of the policyholder. The way Reversionary bonus is applied is very different from some of the other traditional plans that we have seen. In this case, bonus is announced as a percentage of GMB + all accrued reversionary bonuses in your policy. You have Compound Reversionary Bonus (instead of Simple Reversionary Bonus).
Terminal Bonus is announced (applicable) in the year of maturity or demise. Since this is a new plan, no terminal bonus has yet been announced in this plan (up to FY2019). This is very similar to Final Additional Bonus (FAB) in other insurance plans we have discussed on this blog. As with FAB, the quantum of the terminal bonus depends on your luck. You may get a good amount, or you may get nothing at all. While calculating investment returns, do not bet too much on this.
What are the returns like?
It is a traditional life insurance plan. Therefore, don’t expect returns to be too high.
Let’s go by an illustration that I generated for a 30-year-old male on ICICI Prudential website.
The annual premium you choose is Rs 50,000 per annum. Premium payment term is 20 years and policy term is 30 years. Sum Assured will be Rs 5 lacs. After including GST, you will pay a premium of Rs 52,251 in the first year and Rs 51,126 in the subsequent years.
As per ICICI website, GMB will be Rs 8.72 lacs. GA will amount to Rs 2.27 lacs. Therefore, the total Guaranteed Maturity Benefit is Rs 10.99 lacs (GMB+GA). You are sure that this is the minimum you will get at the time of maturity.
The remaining two components of the maturity benefit (reversionary bonus and terminal bonus) are variables.
For the reversionary bonus, we can look at the bonuses announced in the past to make a reasonable assessment. ICICI has announced a bonus of 2% in 2017 and 2.25% in 2018 and 2019. Let’s assume 2.25% for the entire term for the purpose of your calculation.
The last part is the terminal bonus. Since this is a relatively new plan, no terminal bonus has been announced yet for ICICI Prudential Future Perfect. For the above illustration, the website showed a potential terminal bonus of 13.12 lacs. This is with the assumed rate of return of 8% on the investments. With the kind of investments that will be made under this plan (and there is an insurance angle too), 8% p.a. is a fairly high return. Therefore, it is very unlikely that terminal bonus will be higher than Rs 13.12 lacs.
Btw, at 4%, the website mentions that the terminal bonus will be Rs 5.17 lacs and reversionary bonus will be NIL.
As you can see, even a very optimistic scenario about terminal value gives IRR of 5.53% p.a. If you are not lucky with
I don’t think it is good enough for such a long-term investment.
What about you?
You can generate far better returns and get a much higher coverage with a mix of PPF and term life insurance.