Product review — Max Life Smart Wealth Plan

If you are an investor looking for a guaranteed return product to shield yourself from volatility in the equity market, then life insurance companies have an option for you — the non-participating (non-par) endowment insurance plans. In these plans, you pay premium for a certain number of years and get life insurance cover for the entire policy term. On surviving up to the end of the term, you get a lump-sum amount as guaranteed. The IRR (internal rate of return) averages between 4-5 per cent. The advantage with these plans is that like regular term life insurance policies, they also come with tax benefits. Under Section 80C of the I-T Act, the premium paid towards insurance policies, including endowment products, is allowed as a deduction (up to ₹1.5 lakh) from income (provided sum assured is 10 times premium). Under Section 10(10D), maturity proceeds from insurance plans, including endowment products are tax exempt. Thus, returns on guaranteed endowment products are comparable with most financial products in the market, and is a worthy investment.

Recently, Max Life launched its new guaranteed return product — Smart Wealth Plan. Here is a review of the product features:

What’s on offer?

Max Life’s Smart Wealth Plan has four different variants — lump sum, short-term income, long-term income and whole life income. In the lump sum variant, the insured, on surviving the policy term, gets a lump sum. The benefit comprises a guaranteed lump sum and accrued guaranteed additions. In the short-term income variant, a guaranteed ‘income’ is paid out for a chosen period (in the frequency opted) post completion of the policy term. In the long-term income option, one will receive a guaranteed ‘income benefit’ post completion of the policy term for a desired number of years and also get a ‘terminal benefit’, at the end which equals the total premiums paid. Under the Whole Life Income variant, a guaranteed ‘income benefit’ is payable post the policy term, until the death of the last surviving life (the variant offers joint life cover).

The guaranteed income in all the options is a percentage of annualised premium (in whole life option, it is a percentage of single premium), and its value depends on the entry age, premium band, and gender of the life insured.

The premium payment term (PPT), policy term (PT) and pay-out terms are different in each variant.

In the lump sum variant, the longest tenure you get is 20 years (PPT – 12 years). In the short-term income option, the longest tenure available is 13 years (PPT- 12 years) with payout period of 12 years; in the long-term income option, longest tenure obtainable is 11 years (PPT – 10 years) with payout period of 25 years (there is also option for PT – 7 years and PPT – 6 years and payout period 30 years); for whole life option with single premium payment, there is only one option for policy tenure and it is five years.

On death of the policyholder during the policy term, the sum assured is paid off immediately.

The minimum annual premium under the policy is ₹11,000; for the single pay whole life plan, the minimum premium is ₹2.5 lakh.

 

Our take

There are many guaranteed return endowment plans in the market. Of all these, HDFC Life’s Sanchay Plus and ICICI Prudential Life’s Assured Savings Insurance plan were standing out given their high IRR. Now, Max Life’s Smart Wealth Plan also promises a high return. For a male of 35 years choosing the long-term income variant with PPT – 10 years, PT – 11 years and pay-out period of 25 years, the IRR works out to about 5.7 per cent. With HDFC Life’s Sanchay Plus, the IRR for the same term for the same individual would be 5.69 per cent.

A highlight with the Smart Wealth plan is that it offers several PPT and PT combinations, unlike in most plans in the market, including Sanchay Plus, where there are only three options to choose from in the PPT and PT. Also, in the Whole Life option of the plan, there is a joint life cover option, which is not there in Sanchay Plus.

Smart Wealth Plan offers flexibility in taking pay-outs as lump sum. Under the commutation option, the beneficiary/policyholder can take the present value of the outstanding benefits as lump sum.

Thus, to summarise, this guaranteed return plan from Max Life is superior to most plans in the market both in terms of IRR and flexibility.


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