All guaranteed return policies guarantee is low returns

It is the tax-saving season, and individuals are hurriedly engaging in activities to save an extra buck on taxes. Ideally, tax planning should begin at the start of every financial year, i.e., in April, but many find themselves initiating this process at the last minute. Taking advantage of this human behaviour, certain products offering enticing tax benefits are prominently presented during this time. One such product is life insurance policies making claims of 'guaranteed returns' or 'money-back' assurances. These products, aggressively marketed, are nothing but endowment plans in disguise. Endowment plans combine life insurance coverage with investment. The premiums paid into these plans are a) invested and b) used towards life insurance cover. Although these plans offer a tax deduction under Section 80C of the Income Tax Act (in the old tax regime), here, we evaluate if it makes sense for you to buy one before April. Limit on tax exemption Besides the tax shelter, the maturity benefits of endowment plans are tax-free under Section 10 (10D), provided the insurance cover is at least 10 times the premium paid in any year. However, for policies taken after April 1, 2023, a limit has been imposed on tax exemption. Suppose the annual premium exceeds Rs 5 lakh (excluding GST). In that case, the maturity benefit becomes taxable under 'Income from other sources' and as per the income tax slab rates applicable to an individual's income. Low returns Taking a look at some endowment plans, HDFC Life Guaranteed Wealth Plus offers a measly 5 per cent return on investment for its lump sum variant. Similarly, the annuity variants of SBI and ICICI plans yield approximately 6 per cent. These returns are for plans with an annual premium below Rs 5 lakh. Only Bharti AXA Life Secure Income plan offers a slightly better 8 per cent of sum assured per annum. However, in reality, this translates to a meagre 4.28 per cent return. Return of endowment plans (guaranteed income plans) HDFC life Guaranteed Wealth Plus Bharti AXA Life Secure Income Plan SBI Life - Smart Platina Plus ICICI Pru Guaranteed Income For Tomorrow (Long-term) Type Lump sum Variant - Limited Pay Income plan with Assured Benefit Income Plan Option Life Income Income with 110 per cent ROP (return of premium) Premium payment (in years) 6 10 10 10 Premiu

This article was originally published on January 10, 2024.