Returns from guaranteed return life insurance plans trump fixed deposits
Returns from guaranteed return life insurance plans have trumped fixed deposits amid falling interest rates. The trend, according to the industry officials, is expected to sustain over the next 12 months.
Interest rates on fixed deposits across tenors of 7-1,826 days in major public and private sector banks are in the range of 2.75-5.8 per cent.
Data compiled by online insurance aggregator Policybaazar.com show that an individual of 30 years investing Rs 60,000 every year for a period of 10 years can earn a return of 5.51-6.04 per cent across guaranteed return life insurance policies offered by insurers such as HDFC Life, ICICI Prudential, Tata AIA Life, Aditya Birla Capital, Bajaj Allianz Life, Max Life and Bharti Axa Life.
These products, however, are of longer tenure with premium paying terms in the range of 5-12 years and policy terms ranging between six years and 20 years.
According to insurers, guaranteed income policies typically include protection as well as maturity benefits and assured returns, which could be both immediate payout or deferred payout depending on the choice and the policy.
“We are seeing an increased interest for guaranteed return covers which is ideal for risk-averse individuals who are looking for a regular source of income. The falling rates on term deposits have aided the interest in these products,” said a senior executive of a private life insurer.
Vivek Jain, head of investment business, Policybazaar.com, said the insurance companies which invest in long-term instruments such as government securities are able to offer better returns on relatively longer tenure policies. Moreover, with low policy rates and banks being flush with funds, the returns on fixed deposits have come down significantly.
“In 2014, fixed deposits used to give a return of around 8.5 per cent. From there it has come down to around 5.4-5.5 per cent.Today we have a situation where guaranteed return products are offering a better rate than fixed deposits,” said Jain.