This is another post from the Suggest a Topic page, and today I’m going to look at some features of the ICICI Prudential Guaranteed Savings Insurance Plan.
The ICICI Pru Guaranteed Savings Insurance plan is an endowment life insurance plan, and it gives you life insurance cover plus a certain amount at the maturity of the plan.
This plan falls under Section 80C tax saving schemes which means the premium payable will be applicable for deduction from your taxable salary under section 80C.
I find that the easiest way to explain how this plan works is to take an example of one option with certain figures and go through it. Let’s use the same example that they use in their benefit illustration page.
Let’s say you choose the 15 year term policy and decide on a premium of Rs. 25,000.
First thing to keep in mind is that in this option you have to pay premiums for the first 7 years, but you get the money at the time of maturity which is at the end of the 15th year. The good part about this is that your insurance cover lasts for 15 years as well.
So, how much is the insurance cover?
Insurance Cover = Annual Premium x Number of Premiums
In this case – 25,000 X 7 = Rs. 175,000.
From the sample term insurance post – you know that this is not much and you can get a cover of as much as Rs. 50 lakhs with an annual premium of Rs. 5,000 or so.
However, this is one benefit you do get – so keep that in mind.
Now, the next and slightly trickier part – how much money do you get back?
You will get your money back at the time of maturity so in this case at the end of 15 years, and they have split how much you get in three buckets.
- Premium Payment: This is simply the sum of premiums that you have paid, so your own cash, and this forms part of the guaranteed payment they talk about.
- Regular Additions: Every year, they will declare a certain percentage of the sum assured that will be added to how much you receive back from them. From the past numbers – I see that this is around the 4% mark, so in our case 4% of Rs. 1,75,000 or Rs. 7000 will be added to what you get at the maturity. This will be added throughout the term of the policy, so in our case – 7,000 x 15 = Rs. 1,05,000. This is also part of what they consider the guaranteed payment. So, the guaranteed total is Rs. 1,75,000 + Rs. 105,000 viz. Rs. 2,80,000.
- Maturity Benefit: On top of the two amounts above – they will also give you a maturity benefit, but this doesn’t fall under the guaranteed category. I think this means that they are not obliged to pay this amount, however in their illustration they have shown this to be Rs. 74,292.
If you sum up these three amounts – you will get a value of Rs. 3,54,292.
So, under the ICICI Guaranteed Savings Insurance plan, if you were to pay Rs. 25,000 for 7 years, you may get Rs. 3,54,292 according to the illustration that they have shown. Note that the only number that you can be certain of in this calculation is the premium because that’s an absolute, and they will return that.
For the Regular Additions amount – they will pay you a percentage that’s at least half of the 10 year G-Sec and so far that’s hovered around the 4% mark, and from their documentation I couldn’t find anything about the maturity benefit, but at least for this illustration they have used the same rate as the regular addition so let’s just assume that you will get that.
Now, that I have this number – I want to know at what rate should I invest my money myself to reach this target. Let’s choose a conservative number and say that I can only grow my money at 6% per year.
Now, I use the compound interest calculator at MoneyChimp and find out that if I were to invest Rs. 25,000 every year and grow it at 6% – at the end of 7 years I will have about Rs. 2,20,000.
I also used the RD calculator to see how much I will get if I were to get a recurring deposit for 7 years with Rs. 2083 (25,000 / 12) every month for 84 months (years) and that gives me about Rs. 2,16,000.
So, let’s say using these conservative numbers you invest your money for 7 years. Then take Rs. 2,20,000 and do a fixed deposit at 6% for the remaining 8 years. The same calculator shows that I will get about Rs. 3,50,000 at the end of the term.
This shows me that even this conservative interest rate of 6% earns you enough to match the returns indicated by the ICICI Prudential Guaranteed Savings Plan, and in my opinion a cover of Rs. 1,75,000 is not a big enough amount to sway your decision.
Having come this far – the last thing to see is what happens if you want to cancel the policy mid way because that seems to happen a lot.
The brochure says that if you pay the premium for at least 3 years then the policy acquires surrender value, which I take to mean that if you cancel before that time period you don’t get anything at all.
Then to calculate the surrender value – you have to see the higher of the two:
- Guaranteed Surrender Value: This is 35% of the base premiums paid minus the first year premium. So if we go back to our example and say that we want to cancel after the 4 installment. Then 35% of 1,00,000 is Rs. 35,000 and if you reduce the first premium from that then you are left with Rs. 10,000 only.
- Non Guaranteed Surrender Value: This is the present value of the paid up sum assured discounted at the gross redemption yield at the review date immediately preceding the date of surrender, plus 2% annum. Quite frankly, I don’t know how to calculate this or even what this means, I can only hope its close to the money you have already paid but that’s probably not how it is.
I’ve covered all the features that caught my eye, and tried to be as comprehensive as my understanding permitted. If you’ve come this far going through the whole article – the decision makes itself.
If you see any inaccuracies or mistakes in understanding then please let me know, and of course as usual everything that you have to say is welcome.
when icici people explained me this i was able to calculate the flaws of it at instant and iam glad i didnt falled in trap. My simple logic is comparison with nsc 6 years you double the money and it gets liquid after 6 years. I know 80ccd etc stuff is there but this is my first filter comparison for most of the investment schemes to take decision
I was just contacted by an ICICI guy –“Sir ek request hain … Guaranteed Savings Insurance Plan — is plan mein 10000 Rs invest kar lijiye”. He left it unsaid that it’s Rs 10000 PER YEAR for AT LEAST 7 years.
Having made mistakes earlier, I now have a policy of NOT investing in any investment scheme that has an insurance component. Investment is investment and insurance is insurance. When an insurance agent or representative of any investment companies approaches you, it’s HIS(or Her) interest, and not yours that (s)he has in mind. They’ll not hesitate to mislead, lie or cheat in order to get their numbers.
Sometimes the trick they play is to co-operate with you in some thing you want to get done from their respective bank or financial institution, something that sh0uld be part of normal customer service anyway, and then play on your sense of gratitude / fair play / guilt to con you into buying a dud financial product designed to maximize their charges and returns to them, not you. Many , like myself, fall into the trap of not researching adequately and are left holding a dud in their hands.
It’s not ICICI alone, a few months ago my “personal banker” from HDFC tried to convince me to buy another similar sounding “guaranteed” assurance plan (with an insurance component) that their chairman had ostensibly designed for “people like me”.
Luckily, as in the present case, I was able to google my way to reviews. In fact, it’s amusing to note that these guys didn’t come back to me after I mentioned that I’ll decide after I do some research.
Hi All,
Actually yesterday one person from ICICI calls me for same plan like invest 25000/- annually for seven years & you will get atleast 4,42,000/- at the end of 15th year. Can you please advice me whether this plan is good for investment & also tell us whether one should got same amount as mentioned by him…
Thanks
ICICI guys are very aggressive in selling this product. My general advice is not to mix insurance & investment.
If I look this as investment scheme only (anyways they are not covering you and no mortality charges). If he promises 4.42L in writting by authorized person (I mean not just verbal as you can say anything even 10L. In writting on company letter head with signature, id number and seal by ‘Manager’ from ICICI side confirming that you will get 4.42L after 15 Yrs, if you pay 7 annual installments on 25K with no other condition attached) then it ‘may’ be better than FD. But in reality 4.42L is just a figure to attract you. Actually you will get much less than this. They will never give that assurance you in writting. For detailed analysis of plan see my earlier reply. Read prospectus carefully http://www.iciciprulife.com/public/Brochures/GSIP_brochure_FINAL.pdf for what exaclty is gauranteed. Projections mentioned in brochure is not actual factual data. Go through terms and conditions.
My advice, avoid it. 4.42L is just a marketing gimmic & blunt lie. Actual return will be much lesser.
ICICI guys are very aggressive in selling this product. My general advice is not to mix insurance & investment.
If I look this as investment scheme only (anyways they are not covering you and no mortality charges). If he promises 4.42L in writting by authorized person (I mean not just verbal as you can say anything even 10L. In writting on company letter head with signature, id number and seal by ‘Manager’ from ICICI side confirming that you will get 4.42L after 15 Yrs, if you pay 7 annual installments on 25K with no other condition attached) then it ‘may’ be better than FD. But in reality 4.42L is just a figure to attract you. You will get much less than this. They will never give that assurance you in writting. For detailed analysis of plan see my earlier reply. Read prospectus carefully http://www.iciciprulife.com/public/Brochures/GSIP_brochure_FINAL.pdf for what exaclty is gauranteed. Projections mentioned in brochure is not actual factual data. Go through terms and conditions. And make your decision.
My advice, avoid it. 4.42L is just a marketing gimmic & blunt lie. Actual return will be much lesser.
In my personal opinion its a waste. May be a simple FD will give you better.
1. This is no insurance. In case of claim, only the amount you paid and 5% compounded interest. If you make FD you will get better even after paying taxes its 6.219% compounded on amount paid.
Get a Guaranteed Death Benefit (GDB) (Conditions Apply ) which is sum
of all premiums paid till date compounded at the rate of 5 percent per
annum
2. They say FD rate can go down. So is their regular addition (which they dont tell, and project is as high and constant). I will assume mostly they will go up and down with same rate.
Regular Additions (RA)
This guaranteed addition, expressed as a percentage of the SA, will
be declared at the beginning of every policy year
Regular Addition (RA): The RA will accrue at the end of each policy
year. It will be disclosed at the start of that policy year. The RA shall be
calculated as percentage of the SA. This percentage is guaranteed to be
50% of the annualised gross redemption yield (GRY) of the 10-year G-Sec,
rounded down to the lower 0.2%,as at the Review Date immediately
preceding the start of the policy year. The Review Date shall be the 7th of
the first month of every quarter. In case the 7th is not a working day, the
GRY of the next working day shall be considered for this purpose.
According to their projection if I pay 1L premium per year (i.e. 7L in total) I will just above 14L after 15Yrs (suggested by their agent to whom I met recently). Here they assumed constant 4.5% addition (i.e. 9% return on G-Sec which is on higher side for G-sec) (In Dec11 actual rate of RA was 4.3%). I am sure if FD rates are going down then surely will be returns of 10 Yr G-sec so will be RA of GSIP.
So to make it apple to apple I will assume constant FD rate of 9% (30.9% tax each year so effective rate of 6.219% after tax adjustments). Lets say we put 1L for 7 Yr and take out all money at end of 15Yrs.
1L invested for 15Yr @6.219%compounded ~= 2.47L
1L invested for 14Yr @6.219%compounded ~= 2.33L
1L invested for 13Yr @6.219%compounded ~= 2.19L
1L invested for 12Yr @6.219%compounded ~= 2.06L
1L invested for 11Yr @6.219%compounded ~= 1.94L
1L invested for 10Yr @6.219%compounded ~= 1.83L
1L invested for 9Yr @6.219%compounded ~= 1.72L
Total after 15Yrs 14.54L with all taxes paid for FD.
Other benefits of FD over GSIP:
1. No hard commitment. If you have more than 1L put it more. If you dont have no loss like in GSIP where not paying premium will attract penalty/deductions.
2. If you want money before 15 Yrs (I am adding this point as its not insurance, you are only covered with amount that you paid), in GSIP there will be deductions from what you paid but in FD you will get it all.
3. After DTC tax dont know how much will be tax benefit for payout as sum assured is only (max) 7x of annual premium.
4. Only guarantee made is RA is 50% of 10Yr GSec. No guarantee on how much maturity addition, just addition a high amount to artificially show returns higher.
I am not saying FD is very good investment instrument, but from calculations and other terms it seems GSIP is surely not better than FD by any angle.
Disclaimer: This is my personal opinion and calculation sharing with you. Use your own judgment. If I missed any point and mistake in calculation here please let me know, I will also love to invest in better plans ;-). I used the terms & conditions defined in their policy brochure at http://www.iciciprulife.com/public/Brochures/GSIP_brochure_F INAL.pdf
Hi Vikram,
Shouldn’t it be considered that the premiums are also tax free?
The Rs 1L invested will be after tax deductions, so its really 1.3L being invested each year. Over 7 years this will be around 9.1L. no?
Ah, Never Mind. Got it now. Thought you taxed only the increased return.
I feel I have wrongly selected this ICICI gurantee saving insurance plan policy. I am still continuing it. If i discontinue in the middle I have lose huge money. I am paying monthly Rs10,000. People will always think positive and expect the high returns at the end of 15th or 20th years.. good if you are getting it.. There are other sides of this policy tooo.. If the policy holders passed away in the middle (ie before 15/20 years) Did you know how much the nominee will receive? he/she will receive only the Sum assured with 5% interest. no extra benefits/bonus.
To get the entire benefit this policy, policy holder should survive for 15years in the case of 7 years premium paying term or 20 years if the premium paying term is 10 years.
great risky policy …
vichu – i am about to take this policy when it is proposed by investment advisor. then, i searched on the internet to get to this page. one thing to note here is that you should be considering this for diversifying your funds to debt side but not for insurance sake. so, you shouldn’t be comparing how much your nominee will get as a death benefit.
i am hearing that this is better than bank FD’s as you get the 8% or so post tax..
Yesterday I discussed with ICICI agent. The policy holder has to survive till 15 years (If 7 years premium paying term) or 20 years(if the premium paying term is 10 years) to get the entire benefits of the policy. If the policy holder is passed way, then nominee will get only 5%.
hi
Hi Manshu,
Thank you for the information that you have provided on ICICI – GSIP. I was contacted by an ICICI agent regarding this. The agent told that I can withdraw the money after 7 years keep it till 15 years. Agent explained and showed me the following calculation if I deposited 50 K per year
If withdrawn after premium paying term i.e. after 7 Years, would get Rs . 647500 as per the calculation 350000 (Premium Payment) + 175000 (Maturity Benefit 50% of Sum Assured) + 122500 (RA calculated as 5% for 7 years)
If withdrawn after 15 Years, would get Rs. 962500 based on this calculation : 350000 (Premium Payment) + 350000 (Maturity Benefit 100% of Sum Assured) + 262500 (RA calculated as 5% for 15 years)
I was interested in breaking the policy after 7 years, but was unable to find any statement that stated i could end the plan after 7 years. When i told the agent about this, he asked me to refer the first sentence look under the section “Benefit Illustration”, which stated
“This illustration highlights estimated benefits that would be available to an individual on survival till the end of premium paying term”
Does the above statement mean that I get the money as illustrated after 7 years or beginning of eighth year if i withdraw from plan. Please help me in understanding this.
What i remember is if you are withdrawing the policy there will be 20% of our total pay. I don’t the exact percentage. I forced to continue the policy because i have continued it for 2 years and invested huge amount in it.
Hi Manshu,
The information is really very informative and insightful .
But unfortunately it comes to me very late and already become the victim of it.
Is there any way that i can get my money back from icici ?
any help would be greatly appreciated …
Manshu,
You have provided a very informative analysis. We all thank you for your work, who are potential buyers.
I have already deposited a high value cheque for this scheme and if income tax angle is not clear, it makes no sense to invest there for long term.
I think the only option I have is to return it in 15 days period.
Regards,
Hi Manshu
Your analysis of the GSIP product is a good insight. I feel the tax treatment portion is something that will need a look to make this analysis complete. My input is – as the premium is < 20% of the SA, the benefits at the end of 15 years are free from Income Tax. In contrast, the monies earned by the investment in RD + FD will be subject to Income Tax at the individual's income bracket level.
So, net returns will have a difference in the comparision. Please let me know your comments.
Thanks
I think the insurance cover is too low and the time frame too high. Tax rules change a lot and I wouldn’t hang my hopes on tax free income for something that’s as far out as 15 years. Especially when you think of things like PPF which are tax free and under 80C right now, or tax free bonds that come out from time to time.
That’s my take on this.
Hi Manshu, your article on ICICI GSIP offers good insights. Can you please let me know your analysis on ICICI WholeLife from the objective of taking it for life insurance.
Thanks – I can add that to my list of things to be done thought it will take some time since I already have over 18 drafts in there. Have you checked out these two posts on life insurance? I think you will find them useful.
http://www.onemint.com/2011/03/23/comparing-term-insurance-claim-rejections/
http://www.onemint.com/2011/03/08/sample-term-insurance-quotes-from-various-insurance-companies/
Hi
Is ICICI GSIP open for NRE account holders also? If yes, is the maturity benefit repatriable to UK.
Thanks.
Sorry, don’t know about that.
Dear James,
I am working at a Senior post in ICICI Pru and Yes this plan is open for NRE account holders, maturity benefit will be Repatriable to UK only in the case you have paid all the premiums through ur NRE account.if you want to know more about the plan please contact on my Following mobile number
Regards
Chinmay Jhaveri
Mobile No:9899385878
Dear Chinmay,
Can you tell me what kind of compounded anuualised returns I can expect from GSIP of ICICI Pru Life? I was made to purchase this policy by an agent despite of my very heavy resistance. I have a feeling that it was a pure foolishness on my part to having fallen pray to the insurance agent. Because getting 6% CAGR is really not an attractive option.
Regards,
Amol Joshi
9099068088
manshu, icici pru never deserves two big posts from you. many in my circle lost due to misselling and lots of hidden items when buying their products. trust me. . they are not for hard workers who will never afford losing money.
Sahil – all these topics are directly requested by readers, and especially the insurance ones because I have very little interest in them myself. So, that’s the only reason I’m writing about them because people asked for it.
Hello Mansu.
I have been frauded into buying polices for several laks. They never sent me ant insurance policies . If they sent they sent at wrong adresses . So I could not cancel them within 15 days time frame. I wrote to eliteicici but they have not given me any proper response. Can I sue them in court. You apears to be very knowlgebale about the insurance bussiness. Please advice me if you can. I live in usa so cant talk to face to face icici [eoples who ttok me for aa ride for several laks, I know it si been so stupid of mr to trust them but if you can help I would appreciate that.Thanks
@Sahil: Agree with your complaint but risk comes only from not knowing about the product you are buying.
If you are investing your hard earned money to any scheme about which you don’t want to know the complete details then you should be the only one responsible for surprises.
Why do you think other private companies are not misguiding people.
I am not in support of icici or hdfc etc but the bottom line is you should always do the necessary research with reliable sources before giving your money to anyone. Do not blindly believe what agent/salesman says.
give icici your money in the name of insurance and lose it. . keep away from thug private insurance firms who actually selling investment plans with only minor part going for insurance. they are like monkeys. . put your money with them and lose it:(
icici plans best plans in all plans.
I believe to get the benefit out of this policy, the policy holder has to survive till the maturity term 7 or 10 years. If he passed away before that nominee will get only 5% of his total paid amount. I believe it not like (2o or 15 years * Premium amount). It is death insurance = Toatl amount paid so for * .05. Expert can correct me if I am wrong. It is not the insurance plan. I don’t know why they kept the name insurance for it. Now day banks are offering the interest rate at 10.5% and above. This policy will be suitable for the long term saving and not for the insurance. If the policy holder passed way in the middle of the premium period, the nominee cannot continue the policy for the remaining years (10/7 – X premium paid years). I believe it is big risk to take up this policy.
Quite wrong. If the life insured dies anytime during the 15 year term he will get the higher of :-
1) Sum Assured which is equal to 10 times annual premium
OR
2) Sum of premiums paid + Regular additions
whichever is higher.
Secondly, no bank offers 10.5 %. Only for senior citizens. I am an ICICI adviser and also been a customer (I am an engineer by profession, and NOT dependent on selling policies for a living)
Thridly, Manshu you are wrong to not take into account the fact that any FDs will attract tax on interest every year. GSIP might not be a great pure insurance product, but its not meant to be a pure insurance product in the first place.
Fourth, I have taken it because I wudnt like to pay 5000 for 50 lac insurance my whole life. What if I survive? 😛 I would rather pay Rs. 50,000 and make a 6-8% profit pa out of it.
Fifthly, GSIP is not really an expensive product. You must read the brochure carefully and know what you are getting into.
Sixthly, try getting an agent who is well-off and selling policies is not how he makes a living. As for me, I do it so that I can help people save and invest. Leave me an email at [email protected], if you need some advice. I can help you in making a wholistic plan, esp if you have a young baby, as long as you are a reasonable person. I am international CFA Level -1 certified too.
Seventhly, don’t miscontrue above as a sales pitch.
This is plant to loot common people in the name of insurance. stay away from icici
🙂 The uncertainty over DTC continues to put a Q mark on various investments!
Manshu, Thanks for the nice post :-). A few comments.
1. Deciphering the Maturity Addition (MA) returns in this policy is a bit of a task which the ICICI guys were not able to explain to me properly. Nor is it clearly mentioned in the policy document as to how they are able to arrive at the figure. What they have told me is that the MA returns would be roughly 40 – 60% of the total amount of premiums paid i.e 40 – 60% of 1,75,000. If one were to assume it to be 40%, then the MA amount would be Rs 70,000/- and as you have rightly pointed out, although it is not assured return, the return may be higher as well.
2.I would like to draw an analogy of this scheme to the PPF. Both give you tax benefits under 80 C & 10 10(D),No limit on Depositing in ICICI G SIP whereas Rs 70,000 per year in PPF, 15 yr lock in ICICI G SIP whereas 6 year lock in in PPF, Both roughly double the amount you have invested.
3.Although your comparison to a proposal where you put the amount in RD and subsequently take an FD helps you to get an idea on the returns, i feel that the drawback with the comparison is that the returns from RD and FD are taxable and so, the net returns, i presume, ought to be less than ICICI G SIP (if the latter performs well and one were to get atleast a 40% MA)
4.I feel that ICICI G SIP offers some advantages
a.Disciplined saving and Diversification through other than the known options for Tax Saving under 80C with no risk of premium loss
b.Tax Saving (80C) as well as Tax Free Returns (10 10 D,unlike RD/FD combos) and therefore, probably better returns than the latter.
c.Small Life Cover
d.Option of investing by Cash (if the amount is less than Rs 50,000) as you don’t need to provide proof of PAN No.
Do let me know as to what you feel reg. the above.
Great – looks like you have given quite a lot of thought to it. A couple of things – first when DTC kicks in products like these will no longer get you the tax benefit – so you get in a 7 year commitment, but at the end of the first or second year you potentially lose any tax benefit that you got from the product and that impact real returns.
There is a lot of uncertainty regarding the returns without any commensurate benefit – I mean there is uncertainty in equity but then there is potential for upside as well. I don’t feel that here.
But ultimately, it’s your choice – if you feel it is beneficial go for it.
Never ever invest in Insurane for your wealth accumulation especially for long period