Avoid an Inapt Shield

开篇：润墨网以专业的文秘视角，为您筛选了一篇Avoid an Inapt Shield范文，如需获取更多写作素材，在线客服老师一对一协助。欢迎您的阅读与分享！

Traditional plans have surged in popularity in recent years, achieving the status previously held by Ulips or unitlinked plans. Customer demand is high, agents have become proactive retailers and insurers are flooding the market with new versions.

As a result, the ratio of Ulips to traditional plans in the market has seen a reversal. Now, roughly 60-70% of a life insurer’s portfolio comprises traditional products.

So, why has consumer preference changed so fast?

Suresh Agarwal, executive VP and head of distribution and strategic initiatives, Kotak Mahindra Old Mutual Life Insurance, explains: “It was easy to sell Ulips when the markets were on a bull run and investors were making good money.

“In today’s uncertain market, safety of capital and a steady corpus build-up have attracted people to this product (traditional insurance plans). A good interest rate scenario also makes a traditional plan an attractive option.”

So, we look at why investors would buy traditional plans and whether they have better options to achieve the same financial goals.

STABLE INVESTMENT IN UNCERTAIN TIMES

Equity investments have been hit in the past two years. This has made Ulips relatively unpopular.

Traditional plans, earlier considered non-transparent, inflexible and low-yield (and so, difficult to sell) are being sold as a stable option. But is it right to buy a longterm product based on short-term market conditions? Experts say no.

While traditional plans protect capital, its long-term return is poor. Also, the markets will fare better in time and yields from equity-linked investments will rise.

Most traditional plans manage an internal rate of return of just 3-6% a year, less than the prevailing bank fixed-deposit rates (see Rate Card). So, if you are a long-term investor, Ulips or mutual funds combined with a term plan will serve your finances goals better.

“Agents are pushing traditional plans as commissions are higher than on other plans. Anyone who buys such a plan to counter volatility does so for the wrong reason,”says Yashish Dahiya, founder and CEO, .

You can consider debt mutual funds as an option. A debt fund’s risk profile is similar to most debt instruments. It is, therefore, appropriate for conservative investors.

You also have more options as far as liquidity, tenure and the riskreturn trade-off are concerned. Also, dividends on a debt mutual fund are tax free for the investor.

Long-term capital gains from debt mutual funds are taxed at 10%(with indexation) and short-term gains are added to the income and taxed accordingly.

COMBINED COVERAGE

We, and a many experts, have said it before and we will say it again—insurance is for protection, not for saving tax. Tax saving is an additional benefit.

Moreover, there are better taxsaving options that guarantee higher returns. For instance, public provident fund, or PPF, offers a taxfree return of 8.8%.

In addition, insurance requires more commitment. A policy will lapse if you are unable to pay the premium. In contrast, you need to invest only Rs 500 a year to keep your PPF account active.

Then, there are bank fixed deposits that offer an interest of 8.5-9% a year. Those in the highest tax slab of 30% can easily earn 5.6- 6.3% a year, better than what traditional plans offer.

“Guaranteed benefits offered by some plans are measly. You can consider investing in tax-free bonds that, on average, offer returns between 7.7-7.9%,” says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

COVER THAT GIVES RETURNS

The above alternatives do not have life cover, a point agents highlight while selling traditional plans.

However, financial advisors say a term plan is the best option for life cover. This is because you only pay for mortality cover. Since term plan premiums are much lower than traditional plan premiums, the money saved can be invested in instruments that fetch better returns.

Aggressive investors can choose a term plan and invest the money saved in equity, although a term plan with a debt instrument(PPF or a debt mutual fund) will also give better returns than an average traditional plan.

There are also ‘term premiumback plans’, which are significantly costlier than a simple term plan.

For instance, a Rs 50-lakh term plan for 20 years will cost Rs 5,000 while a similar ‘return-of-premium’term plan will cost between Rs 25,000-45,000. So, although you get maturity benefits (some give back 110% of premium paid), it is costlier than traditional plans.