A close friend pinged me about ICICI Pru Assured Savings Insurance Plan and asked if it was a good plan to invest.
Let’s find out.
ICICI Pru Assured Savings Plan: Salient Features
- ICICI Prudential Assured Savings Insurance Plan is a traditional, non-linked, non-participating plan.
- Non-linked means the plan is not a ULIP.
- Non-participating means this is not a participating plan i.e., the plan does not participate in the profits of the company/policy.
- More importantly, this means you know upfront what you will get from the policy. There is no confusion. You pay X amount per year for a few years. And you will get Y amount on maturity.
- Premium Payment Term: 5 or 7 years
- Policy Term: 10 or 15 years
- Minimum Premium: Rs 40,000 or 50,000, depending on the premium payment and policy term.
- Maximum Premium: No limit
- Loan facility available
ICICI Pru Assured Savings Insurance Plan: Maturity Benefit
Maturity Benefit = Guaranteed Maturity Benefit (GMB) + Accrued Guaranteed Additions
Guaranteed Maturity Benefit (GMB) is set at policy inception and depends on your entry age, gender, policy term, premium payment term, and the annual premium. GMB is known upfront. Note that GMB may be lower than the Sum Assured.
You can think of Guaranteed Additions as interest on the premiums paid. And the interest rate depends on the policy term.
For a policy term of 10 years, this interest rate (called Guaranteed Addition Rate) is 9%. The Guaranteed Addition rate applies on the cumulative premiums paid until date. We shall see later in the post how Guaranteed Additions are calculated.
For a policy term of 12 or 15 years, the Guaranteed Addition Rate is 10%.
Every year, Guaranteed Additions are calculated for your policy and these get accrued to your policy.
ICICI Pru Assured Savings Plan: Death Benefit
Death Benefit = Highest of the following
- Sum Assured on Death + Accrued Guaranteed Additions, where Sum Assured on Death is 10 times annualized premium
- Guaranteed Maturity Benefit + Accrued Guaranteed Additions
- 105% of the total premiums paid
Guaranteed Maturity Benefit (GMB) and Guaranteed Additions (GA) have the same meaning/calculations as provided in the “Maturity Benefit” section.
Benefit (1) ensures that the maturity proceeds are exempt from tax (Death Benefit >=10 times annual premium). Death proceeds from a life insurance policy are always exempt from tax.
What do I like about this ICICI Pru Assured Savings Plan?
I have fondness for simple products.
While this is as simple as a bank fixed deposit, if you spend some time, you will know what you are getting into. You know the exact maturity amount upfront.
No negative surprises at the time of policy maturity. Example: You were shown (at the time of policy sale) that you will get Rs 20 lacs but got back only 16 lacs.
This is a non-participating plan. Everything is known upfront.
And if you complete the policy term, you are also locking in the rate of return for the period.
Remember mis-selling can happen here too. For instance. A 45-year-old person may be shown the benefit illustration for a 35-year-old. In insurance (both ULIPs and traditional plans), your entry age affects your returns.
In case of ICICI Prudential Savings Assurance plan, everything else being the same (premium, gender, health, premium payment term and policy term), the Guaranteed Maturity Benefit will be higher for 35-year-old than GMB for a 45-year-old.
For those who are used to scoring one self-goal after another on their wealth, such products might ensure discipline but earn low and stable returns. However, even for such investors, a simple mix of term insurance and PPF/FDs can be a better choice.
What do I not like about the product?
The list is long, including but not limited to low life coverage, lack of flexibility, high exit costs, and of course low returns.
Coming to returns, what will those be like?
The good part is you will know the returns (low or high) upfront.
I consider 2 examples. One for a 38-year-old male and another for a 48-year-old male. This will also help us understand how the entry age affects returns.
Please understand I consider examples for healthy individuals. If you have a health ailment, either your premium will go up or the Guaranteed Maturity Addition will be revised downwards. Essentially, in such cases, the insurance company charges something extra for your life cover. No brochure or benefit illustration will ever consider this.
As you can see, the calculation of Guaranteed Additions is exactly the same in both cases.
The difference in entry ages (38 and 48) affects only Guaranteed Maturity Benefit (GMB). GMB is 10.06 lacs for the entry age of 38 and Rs 8.33 lacs for the entry age of 48. And that explains the entire difference in the maturity benefit in the two cases. The IRR (net return) is 5.31% p.a. for 38-year-old compared to 4.73% p.a. for 48-year-old.
For you to decide whether 4.5-5.5% p.a. is enough for a long-term investment?
These days, banks are offering 4.5-5% (pre-tax) on fixed deposits. Hence, compared with bank FDs, 4.5%-5.5% p.a. (post-tax) on ICICI Prudential Savings Assurance plan looks quite good. However, this ICICI plan is a long-term product with a maturity of 10-15 years. I am not comfortable with locking in my money for the long term for such low guaranteed returns.
What about you? Do you see merit in the ICICI Prudential Savings Assurance plan?