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Sowmya Sundar

LAST week we discussed a few of the endowment plans available. We also looked at the structuring of bonus payments and riders available. This week we will look at endowment plans structured with some innovative features.

Extended life cover

Unlike plain endowment plans that terminate on maturity, ICICI Prudential and AMP Sanmar offer an extended life cover for five years. Both products are similar but the benefit payouts are structured differently. ICICI Prudential's life cover is available after the policy matures; when the sum assured and vested bonuses are paid. Bonuses do not accrue during the extended term. The life cover is equivalent to 50 per cent of the sum assured and will be paid regardless of the earlier payout. For instance, if you have taken a policy for a 20-year-term, you pay premiums for 20 years and will get the maturity benefit, that is, the sum assured and vested bonuses after 20 years, but your life will be covered for an additional five years without you having to pay extra premium for that period. If the policyholder dies during the extended life cover, he gets an additional benefit equivalent to 50 per cent of the sum assured.

AMP Sanmar's "Subha Shree" is slightly different. The premium paying term is shorter than the maturity term by five years. The sum assured is paid at the end of the premium paying term but bonuses are paid only on maturity. Bonuses continue to accrue even during the extended period. For instance, for a 20-year policy, the policyholder will have to pay premiums for 15 years at the end of which he will get the sum assured. However, bonuses will accrue up to 20 years and paid at the end of that period. If the policyholder dies after the premium paying term but before the plan matures — between 15 and 20 years in the above case — 100 per cent of the sum assured is paid along with vested bonuses regardless of the earlier payout. For both policies, rider benefits are available only during the premium paying term.

Increasing sum assured

SBI Life "Sudarshan" is an endowment plan that gives you the option of choosing a fixed or increasing sum assured. The fixed sum assured plan works like a normal endowment plan. But if you choose the increasing sum assured option, the sum assured increases by 5 per cent every year to provide a hedge against inflation. The bonuses will be declared annually on the increased sum assured, which means that bonuses will be declared on a higher base every year. The bonuses are reversionary but not compounded. The premium payments though fixed throughout the term, are substantially higher for the increased sum assured vis-à-vis the fixed sum assured plan.

Additional risk cover

Allianz Bajaj "Investgain" allows a policyholder to opt for additional protection, that is, one can enhance the death benefit by choosing double, triple or quadruple the sum assured in the basic policy itself. In case of death, the nominee receives double, triple or four times the sum assured. But on maturity, he will only receive the basic sum assured and accrued bonuses. The bonuses are reversionary, compounded annually and paid only on the basic sum assured.

SBI too offers a similar plan. Under SBI's term rider one can get a maximum benefit of up to three times the sum assured. Usually, the SA under the term rider is equal to the basic sum assured.

Another feature offered by Allianz Bajaj is the option to increase the risk cover on three special occasions — marriage, birth of the first child, and birth of the second child. As the family grows, the higher risk cover ensures that it is adequately covered.

Another feature that can be appended is the Family Income Benefit rider. Under this rider, on death or accidental permanent total disability of the policyholder, a guaranteed sum of 1 per cent of the SA is paid every month for a minimum of 10 years, or till the policy expires. All future premiums are waived.

Guaranteed additions

A few companies guarantee a certain addition to the sum assured. For instance, Tata AIG guarantees a 10 per cent addition on the basic sum assured on maturity or death. ICICI guarantees a bonus of 3.5 per cent for the first four years.

Death benefit in case of a minor

If the policy is taken on a minor child, the death benefit differs. If a minor dies, then SBI Life pays the sum assured to the nominee. In case of ICICI, the sum assured plus vested bonuses are paid if the minor is above age 7. Otherwise, all premiums are returned.

Max New York too returns all the premiums paid if death occurs before 18.

If premiums are discontinued

If premium payments are discontinued at any point of time, the policy continues with a reduced sum assured proportionate to the premiums paid.

One can also surrender the policy at any time and get the surrender value. The surrender value is usually calculated as a percentage of the premiums paid excluding the first year's premium and all extra premiums. It is not advisable to surrender the policy, as the amount realised will be much lower than the premiums paid.

Returns

Unlike term plans where one does not get any benefit on maturity, the basic attraction of an endowment plan is the maturity benefit.

Therefore, the return generated on the premiums is an important factor while choosing a plan. Returns depend on the bonuses that accrue on the policy. Though bonuses are non-guaranteed, we have assumed a bonus of 3 per cent per annum to calculate the return on the policy.

On a yield basis, ICICI Prudential Save `n' Protect is the most attractive plan yielding 6.3 per cent. SBI Life Sudarshan's increasing sum assured option comes a close second at 6 per cent followed by ING Vysya Reassuring Life at 5.8 per cent and SBI Life Sudarshan fixed sum assured plan at 5.4 per cent.

ICICI Save `n' Protect appears attractive as it also offers an extended life benefit. The riders too are structured attractively. For instance, the Accident and Disability rider has a built in waiver of premium clause in case of total and permanent disability.

Other riders that can be attached to the main policy are Critical Illness rider, Term and Major Surgical Assistance rider.

(Concluded.)

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