HDFC Life Sanchay par Advantage Plan is a non-linked, participating Life Insurance Plan. The unique feature of this plan is that you will receive the advantages of this policy until you reach 100 years of age!!
The company claims it to be a Sanchay (means save and grow) Plan with advantage. In this article, we will do a detailed analysis of its ‘Sanchay’ aspect and we will have a look at any disadvantage on their claimed ‘advantage’!
Let’s read on and figure out what this plan has for you in its basket!!
Table of Contents
- HDFC Life Sanchay Par Advantage: Key Features
- HDFC Sanchay Par Advantage: Immediate Income option
- HDFC Sanchay Par Advantage: Deferred Income option
- HDFC Life Sanchay Par Advantage: Analysis and Review
- The disadvantage of HDFC Life Sanchay Par Advantage
- HDFC Life Sanchay Par Advantage: How to cancel this plan?
- Final Verdict
HDFC Life Sanchay Par Advantage: Key Features
Below are the key features and Basic Eligibility Criteria of this plan:
This policy comes under 2 options:
- Life cover with protection till the age of 100 years,
- Basic eligibility criteria are shown in the below table:
- The policy term will be 100 minus the age of entry. Let us say, you are 30 years old, then your policy term will be 100-30=70 years!
- he Minimum Death Benefit shall be 105% of Total Premiums Paid as on date of death.
- The minimum premium per instalment is Rs.25,000; you can choose to pay it annually, half-yearly, quarterly, or monthly as shown below.
(i) Immediate Income Option; and
(ii) Deferred Income Option
Let’s have a look at this brief video description reviewing all the major aspects of the HDFC Life Sanchay par advantage plan. For details continue reading this article.
Now, let us discuss the 2 options provided by this policy. We will start with an Immediate Income option.
HDFC Sanchay Par Advantage: Immediate Income Option
Let us say you are 30 years old, choose to pay an annualized premium of Rs. 1 Lac for the premium payment term (PPT) of 8 years.
You pay your premiums for 8 years. Once you paid your premiums, you will receive the cash bonuses.
Policy Term will be 70 years. That is, you will receive the Cash Bonuses throughout the policy term of 70 years. The amount of cash bonuses varies based on the company’s performance in the given year.
You can get the Cash Bonus at a different rate of returns, as shown below:
Please note that the Cash Bonuses are NOT the guaranteed bonuses!
Below image shows the description (Image Source: Product Brochure)
As you can notice from the above description in the image:
- The assured sum will be Rs. 8 Lacs.
- And, there will be a terminal bonus of
Rs. 10,31,000 at 4% assumed rate of return, or
Rs. 1,59,34,000 at 8% assumed rate of return.
Note that terminal bonuses are not guaranteed as well.
But if we take the best-case scenario of an 8% assumed rate of return, you will receive
- Rs. 30,000 per annum throughout the policy term, and
- The non-guaranteed terminal bonus of Rs. 1,59,34,000 at maturity.
We will do the detailed illustration and analysis of this best-case scenario to see what all advantages this policy can provide!!
Before we get into illustration, let’s have a look at the other option of this plan, which is a deferred income option.
HDFC Sanchay par Advantage: Deferred Income Option
Let us take the same example as given in the previous option.
Let us say you are 30 years old, choose to pay an annualized premium of Rs. 1 Lac for the premium payment term (PPT) of 8 years.
In this option, you will receive a guaranteed income along with Cash Bonuses, once you finish your premium paying term.
You have to pay your premium payments for the 8th year, then you will start receiving the guaranteed income from next year onwards till 25 years along with non-guaranteed bonuses, as described below:
For 25 Years, you will receive:
- the guaranteed income of Rs. 28,400.
- Cash Bonus of Rs. 42,600 p.a. (assumed at 8% returns), or Cash bonus of Rs. 1,100 p.a. (assumed at 4% returns). [Cash bonuses are not guaranteed.]
After the 25 years duration,
You will only receive non-guaranteed Cash Bonuses as shown in this table:
If declared, then you may receive this bonus amount all throughout the policy term of 70 years.
Apart from guaranteed income and non-guaranteed bonuses, this option will also provide the non-guaranteed terminal bonuses, at maturity as shown in this table:
Calculation of Guaranteed Income:
There is a process of declaring the amount of Guaranteed Income. You are getting the guaranteed income of Rs.28,400 for 25 years because your premium payment term is 8 years and you are 30 years old. For different entry age and for different Premium Payment Term, Guaranteed Income is calculated as shown in the table below:
Now, we will calculate the average returns provided by both options of this policy. We will consider the same examples with the best-case scenario… that is at an assumed rate of return of 8%.
The Assured Death Benefits in the above example for both options will be Rs.12,50,000 in both options. For more details on death benefits, you can refer to the HDFC Life Sanchay Par Advantage Product Brochure.
Our core objective in this post is to make you aware of the investment aspect of this plan. Whether you should invest or avoid this plan!
Let’s do the real analysis of both options in the next section.
HDFC Life Sanchay Par Advantage: Analysis and Review
From the above description, it may seem like that this policy has truly covered the lifetime until you become 100 years old; by providing regular income throughout 70 years. But if you notice it closely you will find that:
1. In the deferred income option,
For calculating IRR, we are taking the best case scenario at 8% assumed rate of returns, as shown in this table:
Using the above data, we will get the IRR to be around 4.8%!!
Please note, this IRR is for the best-case scenario of an 8% assumed rate of returns. It is better not to consider the worst-case or even the average case scenario for this option!!
Even saving bank accounts can give you better returns at this amount.
4% return rate in 70 long years!! Don’t you think that there are better options available for you, if only you care to explore a bit further?
We will discuss alternative options in the later section. Now, let’s have a look at the immediate income option.
2. In the immediate income option, the best-case scenario is that you are receiving the cash bonus of Rs. 30,000 per annum (at 8% rate of interest) until you are 100 years old!
The below table (shortened version) shows the overall duration of 70 years, from the year 2020 till 2090, here we will calculate the average returns of your investment in this policy.
Immediate income option is providing you with the IRR of 5% as their best cash bonuses assumed at 8%. Along with all your premium payments you have to pay the GST charges.
Do you think it is a great deal for your financial future?
With both of these variants, you are getting the returns in the range of approximately 5%!
So what you should do, if you want greater returns for a long term of 60-70 years?
Well, if you are looking for long term investment then you must consider investing in Equity Mutual Funds. There you will get the long term returns in the range of 12% to 15% and you will experience the power of compounding in your invested capital. Let’s take an example,
You choose to invest Rs. 8 Lacs as a Lumpsum payment into equity Mutual Fund, within 25 years the future value of your investment will be Rs. 1,58,30,773, at the assumed rate of return of 12%! Have you noticed it? Just Rs.8 Lacs can make you 1.5 crores within the 25-year duration.
You can keep invested for any number of years and your principal amount will get compounded. You can also choose to invest through SIPs if you don’t want to pay the lump-sum payment.
You can use this Online Mutual Fund Calculator to find the future value of your desired investment value and investment duration, take the returns in the range of 12% to 15%.
If you are risk-averse then, instead of investing in this policy, you can deposit Rs.1,00,000 per annum for any number of years you want into the PPF account or FD Scheme. Here, you will get the assured returns in the range of 7% to 8%. That will make you Rs.1.3 crores in 35 years with Rs.8 Lacs invested capital!
‘Disadvantage’ of HDFC Life Sanchay Par Advantage
In the Immediate income option, you are getting a nominal amount of Rs. 14,500 per annum. In the Deferred Income option, you are receiving merely Rs. 2,500 per annum for 70 years long term!
It is like, your friend asks you for Rs.8 Lacs and promises to pay back any random small amount every single year till you attain the age of 100 years!! Will you lend money to your friend with such a vague promise?
Of course NOT!
In the best-case scenario, this policy promises you to pay Rs. 1.5 crores at maturity. That is, if you start investing from the year 2020, you will get Rs.1.5 crores (non-guaranteed) in the year 2090!! Still, the average return rate will be merely 5%, which can’t even beat the rate of inflation, which is growing rapidly!
Talking about the maturity bonus of Rs.1.5 crores, which you may get from this policy in 70 long years!! But as you have seen the analysis discussed in the previous section:
- With Mutual funds, you will generate Rs.1.5 crores within 25 years of investment duration.
- PPF will generate Rs.1.5 crores in 37 years, and these are guaranteed returns!
I hope now you have understood that though they claim it to be an “Advantage” Plan, actually it is a “Disadvantage” Plan.
Have you ever thought as to why your Financial Advisor is still trying to sell you this product?
If your Financial Advisor recommends or convinces you to buy it, BEWARE! it’s because they may get a commission of 30-40%. If your premium is 90,000, your advisor may get around 27,000 to 36,000 as commission out of your premium. So it is for the commission they are selling you and not for your interest or because it meets your financial goals.
So always check about the product, its review, returns, if it beats inflation, and especially if it meets your financial needs. If not, then do not opt for it just because your advisor tells you to do so.
If your Bank Relationship Manager also tries selling you this product, NOT TO WONDER, the bank also gets a commission. Relationship managers have pressure to sell these kinds of products and also have targets, hence there is a lot of misselling happening.
They missell telling that there is around 8 to 9% returns from these products. (Nowadays the complaints on bank misselling have increased) Hence before you buy a product verify the truth on the HDFC Life website as to what the actual returns are.
There is a lot of marketing and advertisements to attract customers but if you are not an ignorant customer, you wouldn’t fall prey for these kinds of products.
Many are behind complicated products thinking that it must be good, but it is not so. PPF, Mutual Funds, Term Insurance though are old and boring, have no marketing gimmicks in them.
They are simple and easy to understand and also fulfills its purpose. Complexity kills transparency. Less transparency makes it easier to mis-sell.
One more place where it becomes easier to missell is when the investors have no much knowledge of these products, they often tend to believe whatever is said to them. So never be an ignorant investor. Buy a product only if you can understand it. Avoid complicated investment products like HDFC Life Sanchay Par Advantage.
How much is really guaranteed in HDFC Life Sanchay Par Advantage?
Returns are guaranteed only if you complete the payment: If you miss to pay the premium or surrender the policy, the policy benefits will reduce.
They portray the guaranteed part, but how much is guaranteed?
Check your final returns, it’s only 4 to 5%.
GST: You will also have to pay the GST on the premium, after that the returns will become even lower.
Liquidity: Investment will be locked until the income period starts.
If you are looking for wealth creation, then this is not the right product: PPF would give higher returns.
How will this plan even benefit you?
Do you still think this is a good plan?
YES, If you feel that 4% is enough to meet your financial goals, and if it beats inflation.
YES, If you feel that no other investment can give you 4% returns or more.
If your answer was NO, then don’t opt for it. If you have already purchased it, here is a way to cancel it.
HDFC Life Sanchay Par Advantage: How to cancel this plan?
If you have signed up this policy without understanding the complete details of this policy or you signed up because your bank relationship manager pushed it to you, there is a way out. You can come out of this policy.
There will be a free look period of 15 and 30 days as defined below
If you have taken this plan directly from the company then you have the option to return the policy by stating the reason within 15 days from the date of receipt of the policy.
Whereas, if you have taken this policy through some other medium such as online, telephone, which does not involve face to face interaction, then you will have a free look-in period of 30 days.
On receipt of your letter along with the original policy document, you will get the refund of your paid premium, but it will be subject to deduction of the proportionate risk premium for the period on cover, the expenses incurred by the company for stamp duty and medical examination if any.
In case, if you want to cancel this policy during your policy term, then the deductions will be as shown in the below table:
Based on your Premium Paying Term and Policy year when you want to cancel, the surrender value factors as a percentage of your premium paid will be, as shown in the table.
For example, if you want to cancel your policy in the 4th policy year, & your PPT is 8 years; then you will receive 50% of the premium that you paid to the company.
For more details, you can visit hdfclife.com
Also, you can call their Toll free number (from 9 am till 9 pm, all days): 1800-266-7227
In short, you should AVOID investing in HDFC Life Sanchay Par Advantage.
Though they claim it to be a “Sanchay” Policy with “Advantage”; but actually it is a “Vyaya” policy with “disadvantage”, as you might have noticed in the analysis and illustration given above!!
Also, they claim to pay Cash Bonuses for 70 long years but all these bonuses are not guaranteed!
In the best-case scenario, this policy offers returns in the range of 4%-5%, which can’t even beat the rate of inflation. Even the returns provided by your Saving Banks are better than this policy, as they are assured!
Therefore, as an alternative, you must invest in equity Mutual Funds, as you are planning to invest for the long term. For better clarity on Mutual Fund investment, you must read this Comprehensive and Complete Guide to Mutual Funds.
You can also check out the review of HDFC Life Sanchay plus.
In case if you have any further queries in this article feel free to ask them in the comment section.
For more details on investment and your customized financial planning, you should book your FREE consultation call by clicking the link below: