Will : legal declaration of how a person wish his/her possession to be disposed after their death
Return : Profit or loss derived from an investment
Investor : An investor is any party that makes an investment.
It is a type of pure insurance plan where the beneficiary will get the benefit only in case of death of the policy holder during the policy term.
Amount paid to the insurance company for the purpose of the person's insurance.
It is the raise in the value of Consumer Price Index. That is the rate of increase of the price of a goods or services.
Is this HDFC Life’s Sanchay Plus any different from the previous one?
If this Sanchay Plus is better, if at all, is this worth considering as an investment or insurance option?
This review article about the new HDFC Life Sanchay Plus covers the following topics.
- Basic Features of HDFC Life Sanchay Plus
- Practical Review of HDFC Life Sanchay Plus Benefit Options
- Final Verdict
- 1. Review of Guaranteed Maturity Benefit
2. Review of Guaranteed Income Benefit
3. Review of Guaranteed Life-Long Income Benefit
4. Review of Guaranteed Long Term Income Benefit
HDFC has now launched the brand new HDFC Life Sanchay Plus, following the HDFC Life Sanchay endowment insurance plan.
Being the next new version, it sure does have some better features and options than the previous one. It is crafted to be appealing and attractive for every single investor to “invest”. Are these appeal and attractiveness is just a perception created or a reality?
We’ll get to that in this article, after we look into the basic features of HDFC Life Sanchay Plus.
HDFC Life Sanchay Plus: Basic Features
- HDFC Sanchay Plus is a non-linked savings endowment insurance plan.
- It offers four different policy benefit options to choose from. They are,
- The minimum age eligibility for buying of HDFC Life Sanchay Plus policy is 5 years and the maximum age is 60 years.
- The minimum age to be eligible for the maturity benefit is 18 years and the maximum age starts from 71 years.
- This HDFC Life Sanchay Plus requires a minimum premium instalment payment of ₹30,000 a year.
- The HDFC Life Sanchay Plus also offers rider options for ‘Accidental Disability’ and ‘Critical Illness Plus’.
- For detailed features of HDFC Life Sanchay Plus: Click here.
- 1. Guaranteed Maturity
2. Guaranteed Income
3. Life Long Income
4. Long Term Income
Source – hdfclife.comThese features really look attractive, the “Guaranteed” Maturity and Income benefit options in particular.
Of course the benefit is “Guaranteed”, but you must look into how much is guaranteed. This HDFC Life Sanchay Plus is marketed as savings insurance plan and hence must offer a return rate on maturity.
Source – hdfclife.comLet’s see how much they have to offer in return with their four different benefit options with practical examples.
Review Of Policy Maturity Options
To enable the review, consider an average person of 30 years old—let’s call him Madhan.
I am assuming the minimum instalment payment of ₹30,000 annual premium. We shall see how much does this average person gets in return.
1. Guaranteed Maturity Benefit: Review
Under this benefit option the HDFC Life Sanchay Plus the maturity benefit is paid as a lump sum amount at the end of the policy term.
Among the three different policy term let’s choose the 20 years policy term, which is the longest. This policy option has a premium payment term of 10 years.
When the policy matures, Madhan will receive the “Guaranteed Maturity” benefit. The guaranteed maturity benefit is the sum of Guaranteed Sum Assured and the Guaranteed Addition.
The Guaranteed Addition differs with different groups of age. It is higher for younger age group than the older age group. See the table below.
Source – hdfclife.com
In our example, Madhan will receive a Guaranteed Addition of ₹140, which is the maximum Guaranteed Addition possible.
|HDFC Life Sanchay Plus Guaranteed Maturity|
|Age||Year||Premium Payable||Guaranteed Addition|
|50||21||Guaranteed Sum Assured= ₹3,00,000||Guaranteed Addition= ₹4,20,000|
|Total Guaranteed Maturity Benefit||₹7,20,000|
A return rate of 5.7% for a term of 20 long years is not a good investment option at all. It is not even an average investment option.
The Catch: If you think it is not bad, keep in mind that you have to pay the GST in addition to the premium you are paying. If we consider that too, the return rate will be definitely lesser than 5.7%.
Hence, Guaranteed Maturity is not a wise option at all.
Let’s see whether the other benefit options have anything better to offer.
2. Guaranteed Income Benefit: Review
The Guaranteed Income benefit option of the HDFC Life Sanchay Plus will pay you the maturity benefit as a guaranteed income for a select number of years in arrears.
In this example let us choose the policy plan with 13 years policy term.
It requires a premium payment term of 12 years. The maturity benefits will be paid as Guaranteed Income in arrears.
Madhan will receive this “Guaranteed Income” for 12 subsequent years after the successful completion of the policy term, i.e. from the 14th year to 25th year.
See the illustration image of Madhan’s plan below.
Technically, the first year premium of ₹30,000 is coming back as ₹69,525 after 14 years. The return rate is approximately 6%.
The Catch: If you think it’s fair enough to consider buying this policy plan, remember. We did not include the GST which you will be paying along with the payment of annual insurance premium. If you weigh that in, return rate must be only a little over 5%.
In addition, your benefit will be the same throughout the payout period as inflation increases during the payout period. Today’s ₹69,525 will not have the same value after 10 years in the payout period.
Therefore, this “Guaranteed Income” option is not a better option either. Can the other two benefit options reward you better? See it for yourself below.
3. Guaranteed Life-Long Income Benefit: Review
The HDFC Life Sanchay Plus’ Life Long Income benefit option will attract the masses for sure.
The maturity benefit is paid as guaranteed income from the end of the policy term in arrears, until the insured attains 99 years of age.
Guaranteed Life-Long Income looks attractive. But, you may buy it only if your age is between 50 years and 60 years old.
Let’s assume Madhan is above 50—say 53 years old—since it is the basic age requirement. Also, choose the 11 years policy term. See the plan illustration in the image below.
“Life Long Guaranteed Income”
Did they just sell the “Financial Independence” in a single insurance policy?
It’s terrifying how words are used to manipulate investors’ decisions to sell products.
Whatever they do, don’t let yourself be fooled.
The Catch: The return on this “Life Long Income” policy is a shy of 7%. But think about it, a maximum of 7% interest return for a period of almost 50 years is ridiculous.
As we have seen in the above reviews, you’re going to pay more as GST. And the inflation will keep reducing the value of your “income” exponentially.
It may appear good in contrast with the previous options. But from a money-smart investor’s perspective, it is also a big let-down.
The last remaining benefit option claims to have some flexibility. Let’s see what it has under its hood.
4. Guaranteed Long Term Income: Review
The Long Term Income benefit option of the HDFC Life’s Sanchay Plus policy promises to pay the maturity benefit in arrears for a select period of time.
The payout period of the policy varies based on the policy term. However, it ends on the 36th year from the starting year of policy term.
Let’s assume Madhan buys the 11 year policy term for which he will be paying 10 years of policy plan. His plan would look like,
A “Guaranteed Income” of ₹32,445 will be paid for a period of 25 years in the chosen policy term. And the total premium paid will be returned at the end of the payout period, i.e. in the 36th year along with the annual maturity benefit.
You get your whole premium money in the end. That is neat, except it is only 25 years later.
The Catch: Even a minimum assumption of just 6% inflation will reduce your ₹3 lakhs by 4.3 times. That is, the worth of your ₹3 lakhs will be lesser than ₹70,000 in today’s value.
Overall, this “Guaranteed Long Term Income” is capable of providing only 6.5% at the most.
A 6.5% return rate for a period of 36 years should not even be an option to consider. And the obvious, you will be paying the GST for your premium payment—reducing the return rate even more.
I must say, this benefit option too is only the same thing in a different wrapper.
Do these plans have anything at all to offer an investor?
What is our view on this HDFC Life’s Sanchay Plus endowment plan?
The term “Guaranteed” ultimately seems to be only a marketing plan than a policy plan. A return of 5%-7% in these policy options can never be an investors’ delight but misery.
Instead, you can buy a term insurance for life cover at a much lesser price—while you invest rest of the “premium” in instruments that give better returns.
PPF is also a triple tax Exempt investment instrument that gives return above 8% quarterly.
Or if you are willing to manage risks, there are even better options. You can invest in equity mutual funds for even higher return, an average of 12% return.
Be money smart and stay away from such low return “savings insurance” plans.