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.
I have spent considerable amount of time researching on this plan and this is my verdict.. don’t go for it! Go for a simple term insurance [about 5000 a month will give you upto 50 lakhs cover] and good old PPF [if market risks scares you]. You will be much better off doing these two compared to GSIP. To give you a practical illustration, as per Feb 13, regular addition rate is around 4% [50% of G-sec], so if you invest 50000 pa for 10 years in 20 year GSIP, your annualized premium after taxes will be 48500, sum assured will be 4.85 L, total RA of 3.88 L, maturity addition of ~ 4.97 L, so your total returns after 20 years will be around ~13.7 L and during the term you get a “free” life cover which ranges from 4 L to 10 L. As for as life cover is concerned it is just too cheap to even consider, and about returns.. lets compare head to head with a current 8.8% PPF where like GSIP, lets say you invest 50000 for 10 years and then just maintain the account for next 10 years with 500 pa – and what you get out of it is ~ 19.1 L. That’s just PPF, now think what you can do with equity in this long term. All this makes me think why would some one buy it? I can only assume people get lost in the details and fail to ask real questions.
I would say around 22 yrs.
In that case I would stay away from buying into any specific pension products and stick to other investments. There isn’t any great pension product that’s available that you can look and say this is better than everything else. I think it is better to accumulate money and invest it in other products at this point.
Hi All,
Is there an option of getting pension instead of lumpsum amount at the end of the policy tenure?
MP
The lumpsum you get can be used to buy an annuity so you can generate a pension with the lumpsum you get at that time.
So how long can I get this pension?
It really depends on the product you choose, but there are options that can give you a pension for a lifetime. Now, currently the returns on pension funds in India aren’t all that good, but you can look at some based on what your needs are. How far away are you from retirement?
hi…
can i know whether the traditional plan of icici cash back plan is good to invest or not.
Insurance plan of any company should not be viewed as investment plan.You can choose a term plan of any reputed Co. for taking risk cover.No cash back plan is good for investment.
Following points will help you to take right decisions.
Income earning person with no dependents : Should Buy health insurance and accident insurance covering disability from a General Insurance Co.
He must buy life insurance if he takes a loan covering the loan amount even if the amount is small.(Term Plan).
Income earning person with dependents – Buy a term plan after buying above 2 plans.(Check with your Company if they are providing you health or accident cover.)The min. amount can be 100 times your Monthly expenses.
Do not club insurance with investment as both will suffer.
Open a PPF A/c as soon as you start a job.Why? It gives you 8.8% compounded return.It gives you tax benefit upto one lakh. It automatically takes care of your retirement planning as it runs for 16 years and therafter you can renew it as many times as you like foa a span of 5 yrs.
Start a Bank Recurring at the same time which will take care o your short term Goals.
For more advice, you can indicate your interest and give your E mail in the blog.
You can personally visit the office.Read All the terms and conditions carefully.Keep a xerox of all the relevant documents.You can approach a manager at higher post if you feel that you are not geting a good service.
Life Insurance – Buy a term plan.
Hint: Buy life insurance just like health insurance.i.e. pay a premium and get cover.
Thanks all. I have purchased ICICI G-SIP few days ago and receive policy today. Now after go thriugh your discussion i have decided to Cancel the policy through”Free Look Period”. I have downloaded the form and now my question is , shall I send the form with all relevant document by post at their office at Mumbai or I have to personally visit the branch for the same ?
Many thanks you saved my money
Thanks for the interesting analysis.
Let me share my story,.
I given the cheque for same policy , For Rs.31,000/- (18th Sept 2012) and today I cancelled the DD. As I wanted to restructure the home loan, they are able to talk and convince me on the same.
It would have been a real disaster or like committing a suicide with the own money.
INSURANCE and INVESTMENTS are not same. Don’t be fool again clubbing the same.
I am one of the fools you buyed this policy. I am paying 25 K/ annum.
I now realise its a waste.
What I can see in policy brochure , is that if you surrender before 3 yrs , you lose all your money.
If you surrender after 3 yrs … the caluclation is as follows.
You get higher of the 2 options below.
I am assuming half of GYR at 4 %
so you invested for 3 yrs = 75 K
Your RA at rate of 4 % of SA (172900) = 6916 * 3 yrs = 20748
option 1 > 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. ( NOT RECOMMENDED)
Option 2 > Non Guaranteed Surrender Value: This is the present value of the paid up sum assured ( PUSA) discounted at the gross redemption yield at the review date immediately preceding the date of surrender, plus 2% annum.
PUSA = GMB * ( no of premium paid/ total no of primium payable)
GMB = Sum Assured + Regular Addition.
Sp GMB = 172900 + 20748 (As calculated ) = 193648
PUSA = 193648 ( 3/7) .. Since you paid only 3 of 7 premiums = 82992.
This PUSA is discounted at ( GRY + 2 % ) .Assuming GRY at 8 % Discount 82992 at 10 % and you get 74692 .
So you invested 75 K till 3 yrs and you get 74692 at end of 3 yrs .
You can cal for 4 , 5 , 6 and 7 yrs respectively
Plz correct me if I am wrong.
The points here are as follows.The policy is declaring a bonus on SA .It is an endownment policy.The bonus rate is 4.2%.The advisor says that GSEC are offering 8.7 to 9%.Channces of higher returns in the future and there are no motality charges.In traditional plan, the company is not required to give you details on Investment returns and Expenses like ULIP.
This is not a FD. The expenses will be cut and this is where you can decide about the plan.The insurance works on the principle of sharing, probabilties and large nos.
The maturity benefit along with RA will give you the idea about the total return.The maturity bennefit amount is dependent on the wish of the company.The Advisor was silent on Expenses part.Those who want to invest and save tax can go for PPF where you can withdraw after certain period, you can also take loan and you will get a decent 8.6% compounded return.
In this policy, 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.
—
It is not a waste investment at all! You will get between 12-15 lakhs if you wait for 15 years. (annual premium = 60k) and All of it will be tax free. This is amazing since if you are a private sector employee, you can imagine that in 15 years you will be in 30% tax bracket, and having 12-15 lakhs tax free will be a big deal.
Your money will be invested in Govt securties and it is safe.
The choice of investment+ insurance or only insurance should be an individual and personal one. I choose investment + insurance for myself.
Remember that this is very much like an LIC policy, except returns of ICICI have been higher than LIC for obvious reasons.
The only alternative to such products is mutual funds. But financial literacy is so low in India, that people will just keep the money in bank accounts and not invest it. Plus, noone will buy 50 lakh insurance for 5000 p.a. asking the very pertinenet question – What will I get if I live!
Thanks for making me understand. Indeed this plan is not good at all. You have ban to surrender your policy.
I took one policy but latter i thought nothing is good in this.
ITS A WONDERFUL SCHEME, ITS A UNIQUE GUARANTEED PLAN WHICH IS INVESTMENT+INSURANCE+PENSION PLAN. I CHOOSED 1LAC/ANNUM PREMIUM AND HAPPY WITH D FEATURES AND ITS A DISCIPLINED INVESTMENT PLAN.
Sorry i don’t know about your product.
sir
recently i did icici gsip plan in 50000 per annum for 15 yrs plan
can i stop in between if i cannot continue? how much return i will get?
can i stp after 7 yrs ? how much return i will get?
i didnt make any nominee
in uor point of view is it good?
if i continue 15 yrs how much return i will get?
If you stay for 15 year you will get between 7-10 lakhs. If you quit now, you will not even get what you have put. Soumitra, did you not know this when you bought the policy?
Just continue for 15 years. Don’t blame the company if you withdraw now.
Thanks for the analysis Manshu and to others who have replied to this post. Coming from a non financial background, I think such posts at least assists people like me to read the finer details of a product and look for other options which has been there for long (PPF , RD, FD) for investment/savings.
Keep up the good work!
That’s great to hear! Do post any questions or comments that you may have and me and the other great commenters here will try to answer them. Thanks!
Hi Manshu. It was great to read your review of this product and the comments of the visitors on this page. Today my ICICI bank manager approached me with this product. My initial reaction was that this is a useless “insurance” product since the “Death Benefit” as per their brochure stated return of premiums paid with compounded interest @ 5%, instead of the sum assured. He then said that w.e.f. 1/4/2012, the scheme has been changed. The “Death Benefit” as stated in the brochure he showed on his computer read “Get a Guaranteed Death Benefit (GDB), which is the higher of sum of all premiums paid till date compounded at the rate of 5% per annum and 10 times of annual premium”. All other features were the same as earlier. Even though insurance cover has now been added to the scheme, the bank manager still maintained that there will be no mortality charges deducted from the policy holder. But since the “maturity addition” is not guaranteed, ICICI Pru Life will of course deduct this cost from the maturity addition – they are not doing this business for public welfare.
This scheme is not listed on the website of ICICI Pru Life as of now, neither the pdf copy of the brochure he has sent me is available on their website. It is though appearing on some cached pages when searched on Google. Therefore, I am not sure why these people are still marketing this scheme.
Your valued comments would be much appreciated.
Hi Rahul, I think they made the change due to the new announcement in the last budget that insurance policies that don’t cover 10X their premium won’t be allowed tax saving benefit. It doesn’t change anything material in my opinion.
i had similar experience with the agents selling maxnewyorklifegain plus 20 yrs (PAR) – I have paid the first premium but not sure if i shouldcontinue…
Dear Friends,
I am sad I did not see Manshu’s analysis on the product as well all your additional inputs. I have taken this scheme for Rs.60,000 p.a. which I now realise is a waste investment. Now I need to continue this till my 7th year else I lose all the money invested..
Yes I agree – let us not mix Insurance with investment. All these schemes are beneficial only the Insurance Companies.
Suresh
Suresh, you are not enrolled in a wrong scheme. You WILL BE WRONG IF YOU WITHDRAW BEFORE MATURITY !
It is not a waste investment at all! You will get between 12-15 lakhs if you wait for 15 years. and All of it will be tax free. This is amazing since if you are a private sector employee, you can imagine that in 15 years you will be in 30% tax bracket, and having 12-15 lakhs tax free will be a big deal.
Your money will be invested in Govt securties and it is safe.
The choice of investment+ insurance or only insurance should be an individual and personal one. I choose investment + insurance for myself.
Remember that this is very much like an LIC policy, except returns of ICICI have been higher than LIC for obvious reasons.
The only alternative to such products is mutual funds. But financial literacy is so low in India, that people will just keep the money in bank accounts and not invest it. Plus, noone will buy 50 lakh insurance for 5000 p.a. asking the very pertinenet question – What will I get if I live!