Any Investment strategy is done in the hopes of meeting your future financial goals. You may be looking for investment products that give you the potential to accumulate wealth to achieve your financial goals.
Will Kotak Assured savings Plan take an active role in your portfolio to build wealth? This detailed review will help you in deciding the placement of the Kotak assured Savings Plan in your portfolio.
Table of Contents:
1.)What is Kotak Assured Savings Plan?
2.)Features of the Kotak Assured Savings Plan
3.)Eligibility Criteria of the Kotak Assured Savings Plan
4.)Benefits under the Kotak Assured Savings Plan
- Death Benefit
- Maturity Benefit
- Guaranteed Yearly Addition (GYA) & Guaranteed Loyalty Addition (GLA)
5.)A Grace Period, Lapse, Reduced Paid-Up Policy & Policy Revival of the Kotak Assured Saving Plan
6.)Free Look Period of the Kotak Assured Savings Plan
7.)Surrendering the Kotak Assured Savings Plan
8.)Advantages of the Kotak Assured Savings Plan
9.)Disadvantages of the Kotak Assured Savings Plan
10.) Research Methodology
11.) IRR Analysis of the Kotak Assured Savings Plan
12.)Kotak Assured Savings Plan Vs Other Investments Alternatives
13.)Final Verdict on the Kotak Assured Savings Plan
What is Kotak Assured Savings Plan?
Kotak Assured Savings Plan is a Non-Participating, Endowment, Assurance Plan. This Plan not only provides affordable protection but also helps accumulate wealth for achieving your Future Financial Goals by giving Guaranteed Benefits. At Maturity, you will receive a Guaranteed Maturity Benefit.
Features of the Kotak Assured Savings Plan
- Limited premium paying option – 5,6,7 & 10 years.
- Guaranteed Yearly Additions are added every time premium is paid & finally payable at maturity or death whichever is earlier.
- Longer the premium paying term, the higher the benefits i.e., all the additions increase with the increase in premium paying term.
- Option to enhance Protection through a wide range of Riders.
- Tax benefit on premiums paid u/s 80(C) and benefit received u/s 10(10D).
Eligibility Criteria of the Kotak Assured Savings Plan
The basic information we need to know to enter the Kotak Assured Savings Plan is mentioned below;
|Entry Age (Last Birthday)||3 years||60 years|
|Maturity Age (Last Birthday)||18 years||75 years|
|Premium Paying Term (PPT) & Policy Term (PT)||PPT||Policy Term|
|5 Pay||10 / 15 Years|
|6 Pay||12 /18 years|
|7 Pay||14 / 20 Years|
|10 Pay||15 / 20 Years|
|Premium Paying Frequency||Annual, half-yearly, quarterly, monthly|
|Annualized Premium||20,000||No limit|
|Sum Assured||Depends on premium, age, term, and PPT|
|Premium Modal Factor (% of annualized premium)||Annual||100%|
Benefits under the Kotak Assured Savings Plan
In case of an unfortunate event of death of the life insured during the term of the plan, the nominee will receive the following;
- Basic Death Benefit, Plus
- Guaranteed Yearly Additions accrued as on the date of death.
Where the Basic Death Benefit is defined as, Higher of;
- 11 times the annualized premium (for entry age less than 50) / 7 times of annualized premium (for entry age 50 Years & above).
- Guaranteed Minimum Death Benefit.
- 105% of total premiums paid (excluding any extra premiums).
The guaranteed minimum death benefit is defined as a percentage of the Basic Sum Assured mentioned below;
|PPT||Guaranteed minimum death benefit (% of Basic Sum Assured)|
On survival till the end of the policy term, the following Guaranteed Maturity Benefit will be paid provided the policy is in force and all premiums are paid.
- Basic Sum Assured, PLUS
- Accrued Guaranteed Yearly Additions, PLUS
- Guaranteed Loyalty Addition
Guaranteed Yearly Addition (GYA) & Guaranteed Loyalty Addition (GLA)
GYA will be calculated as a % of the Cumulative Annualized Premium paid every year. It will accrue throughout the premium payment term and will be paid out at Maturity or on Death.
GLA will be calculated as a % of the Basic Sum Assured and be paid out at Maturity. The rate of such an addition will be based on the opted premium payment term.
|PPT||Guaranteed Yearly Additions as % of Cumulative Annualized Premium||Guaranteed Loyalty Addition|
A Grace Period, Lapse, Reduced Paid-Up Policy & Policy Revival of the Kotak Assured Saving Plan
There is a grace period of 30 days from the due date of payment of the premium for the policyholders who have opted for the yearly, half-yearly, and quarterly modes, and 15 days for the policyholders who have opted for the monthly mode.
If premiums are discontinued anytime during the first two policy years, the policy shall lapse at the end of the grace period and no benefits shall be payable.
Reduced Paid-Up Policy:
After the policy acquires Surrender Value after 2 policy years, if the subsequent premiums are not paid within the grace period the Base Policy along with Riders (if any) will be converted into a Reduced Paid-Up policy by default.
A lapsed or a Reduced Paid-Up policy can be reinstated for full benefits on revival within five years of the first unpaid premium or before the end of the policy term whichever is earlier.
Free Look Period of the Kotak Assured Savings Plan
The policyholder may choose to return the policy to the corporation within 15 days of the date of receipt if he/she is not agreeable with any of the terms and conditions of the plan.
The Free Look Period will be extended up to 30 days for E-policies and policies purchased through Distance Marketing mode.
Surrendering the Kotak Assured Savings Plan
The policy acquires a Surrender Value provided premiums due for at least 2 policy years have been paid in full.
The higher of the Guaranteed Surrender Value and Special Surrender Value will be payable.
Advantages of the Kotak Assured Savings Plan
- The plan offers flexibility to choose the policy term and premium payment frequency at your convenience.
- Since it is a non-linked & non-participating policy, the benefit amount of Maturity or Death receivable is Guaranteed.
- The plan offers a loan facility of up to 50% of the surrender value.
- Guaranteed Additions and Guaranteed Loyalty Additions increase the final maturity benefit or death benefit.
- Additional protection is available through riders.
Disadvantages of the Kotak Assured Savings Plan
- The main disadvantage is both the additions (Loyalty Addition & Guaranteed Addition) depends on your premium paying term. Higher the premium paying term, the higher the additional benefits.
- The Maturity Benefit will not suffice to meet your future goals.
- There is no adequate life cover.
For further details, you can refer to the Kotak Assured Savings Policy Brochure.
As an investor, you should be aware of the cash flow of the policy. This will determine the suitability of the policy.
Here in the Kotak Assured Savings plan, the premium paying term is limited & at the end of the policy term, you will receive the Maturity Benefit along with the Guaranteed additions & Loyalty additions.
With this cash flow, we can estimate the Internal Rate of this policy. Also, we can compare this rate with other investments to make a sensible decision.
IRR Analysis of the Kotak Assured Savings Plan
The Assumptions for Comparison:
|Policy Term||15 years|
|Premium paying term||10 years|
|Annual premium||Rs. 1 Lakh|
In this illustration, a 35-year-old male buys this for an annualized premium of Rs. 1 Lakh. The Sum Assured is Rs 10, 09,029, the premium paying term is 10 Years & the policy term is 15 years.
At the end of the policy term, a Guaranteed Maturity Benefit of Rs. 17,60,835 is receivable. You can infer the following table for the cash flow.
|Kotak Assured Savings Plan|
|Age||Year||Annualized premium / Maturity Benefit||Death Benefit|
The IRR for the given cash flow is 5.42%. This rate of return is somewhat lower than the bank FD rates at present.
Moreover, this rate of return will not help to cope with the rising economic inflation. The Bank FDs offer more liquidity than the Kotak Assured Savings Plan. Therefore, from the above table, it is evident that this policy is not suitable for a long-term investment.
Kotak Assured Savings Plan Vs Other Investments Alternatives
The mediocre return from the Kotak Assured Saving plan leads you in search of other better investment options.
You can opt for a risk-free instrument like PPF or market linked instrument like ELSS. It is important to mention that both offer a tax benefit for an annual contribution.
So, let us compare the Kotak Assured Savings Plan with other Investment Options below to see which fares better potentially in the long run through an in-depth IRR Analysis.
Kotak Assured Savings Plan Vs. Pure Term Insurance + PPF / ELSS
The Assumptions for Comparison:
|Pure Term Insurance Policy|
|Sum Assured||Rs. 10 Lakhs|
|Policy Term||15 years|
|Premium paying term||10 years|
|Annual premium||Rs. 6,600|
|Balance Amount for investment||Rs. 93,400|
Similar to the Kotak Savings plan, the life cover for a Sum Assured of Rs. 10 lakhs can be bought for 15 years of coverage in a Pure Term Insurance Policy. The annual premium is Rs. 6,600 for a 10-year premium paying term. The balance amount of Rs. 93,400 out of Rs. 1 lakh can be utilized for investment.
The lock-in period for PPF is for 15 years. But in the illustration, the cash outflow is only for 10 years. Therefore, a minimum subscription of Rs. 500 is adjusted in the last 5 years.
|Term Insurance + PPF||Term insurance + ELSS|
|Age||Year||Term Insurance premium + PPF||Death benefit||Term Insurance premium + ELSS||Death benefit|
The above table elucidates the potential returns of other investment options. The Pure term + PPF yields 6.44% & Pure term + ELSS yields 10.64%.
The risk-free PPF yield is just in close touch with the inflation rate. The ELSS yield is over & above the inflation rate.
If you plan to build your corpus by investing in these investments, it will help you achieve your future financial goals. The final maturity value can be utilized for your life’s financial goals.
Final Verdict on the Kotak Assured Savings Plan
Kotak Assured Savings Plan is designed to provide guaranteed returns along with life insurance coverage to individuals who want to save for their future financial goals. However, it is important to note that the returns under this plan are guaranteed and may be lower than the returns offered by other investment products that are available in the market.
Kotak Assured Savings Plan may not be suitable for individuals who are looking for higher returns or want to take on more risk in their investments.
Consult your Financial Advisor for choosing an appropriate Pure Term Policy & Investment plans for better results.
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