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Saturday, September 29, 2012

HDFC SL Classic Assure Insurance Plan Review




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HDFC SL Classic Assure is a limited premium paying plan which comes with survival benefits.
Besides Maturity Benefit and Death Benefits this plan may give you non-guaranteed returns every year (better called as reversionary bonus or non guaranteed bonus) which once added to the policy is guaranteed either at maturity or on the death of the insured person, whichever is earlier.

Reversionary bonus is nothing but a bonus amount added to the Sum-Assured, given out of the surplus profit of the insurance company annually.

Sum Assured is the minimum amount payable to the insured person who survives till maturity or to his relatives in case of the death of the insured person.

This plan comes with various premium paying options like yearly, half-yearly, quarterly or monthly.
This policy shall fetch you tax benefits under sections 80 C and 10(10D).
Let us review this plan for a 36 year old male for a policy term of 15 year. Premium is payable for 7 years.

Policy Term
Annual Premium
Total premium paid in 7 years
15 Years
Rs. 51,545
Rs. 3,60,815

Return when assured person survives the policy term-

Sum Assured
Cumulated Non guaranteed bonus received @6% per annum accumulated in 15 years
Total Return
Rs. 3,93,894
Rs.64,994
Rs. 4,58,888

Let’s see what will be returns when instead of going for this plan, a combination of an online HDFC Life term plan (Click2protect) and investment in HDFC bank RD (Recurring Deposit) is chosen-

The Click2protect online term plan of 15 years for a Sum Assured (SA) of Rs. 10 lakh (please note this SA is 2.5 times the SA of Classic Assure insurance Plan) requires an annual premium of Rs. 2240 only.

This means now there are Rs. 49,305 to be invested in HDFC bank RD (Premium of Classic Assure plan {Rs. 51,545} minus Rs. 2,240).

HDFC bank, by this date, offers a coupon rate of 8.25 % on an RD of 7 year tenure. Just after 7 years return shall be Rs. 4,31,586. This corpus then can be kept in HDFC bank FD for next 8 years (We are trying to simulate the Classic Assure plan for a term of 15 years in a better way). This sum (of Rs. 4,31,586) even at a low coupon rate of 6% (for a FD of 8 years) shall give the final  corpus as Rs. 6,87,881.
Compare it with what you would have gotten after 15 years in Classic Assure Plan- Rs. 4,58,888 only.
If coupon of the FD were to be 8% then the corpus would be  almost around Rs. 8 lakh.

Tax Angle: the forte of tax plan lies in their tax-saving feature. Under Section 10(10D), income from the insurance is tax free.
So we have to reduce the final corpus from our simulation by ~ 30 %( or 10% or 20% as per the slab investor falls in). After subtracting income tax at 30 % corpus becomes around Rs. 4.82 lakh, which is still better than the return of classic Assure plan.

Inference:  

(1) It is always better to go for a combination of HDFC Click2protect online term plan and a 10-year HDFC bank RD than going for Classic Assure Insurance plan for the same policy term.
Though online insurance plans are not available in smaller cities and rural areas still a combination of offline term plan and RD too shall give better returns than the Classic Assure term plan besides higher death benefits.

(2) After tax consideration Classic Assure plan is more suitable for investors falling in top income tax category (30%).

3 Comments:

Anonymous said...

MY AGE IS 55 YEARS. PLEASE ADVICE WHETHER I SHOULD GO FOR THIS POLICY?

Avadhoot Nasikkar said...

plz furnish details like your sex,reciding city,whether tobacco use,maximum premium paying capacity,dependents and the income tax slab u fall in.

Anonymous said...

My age is 31 and i have DFC classic assure policy.
Sum assured 162231
premium 25000
startdate 8 feb 2013
policy term 10 yrs
Not sure how much i will get after completingpolicy tenure, also need to know if i surrender policy after 3 yrs what amount will i get.

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