Should You Buy HDFC Life insurance policy!

By | December 8, 2020

we will discuss the review of the HDFC Life Sanchay Par advantage plan. So the unique feature of this plan is that you will receive the advantage of this policy until you reach 100 years of age. So this policy comes under to option. Immediate Income Option and Deferred Income Option and also you will receive the life cover till the age of 100 years so eligibility the age of entry so this is the minimum and this is the maximum age based on your option and age of maturity is hundred years. The premium payment term is different for both options and we will take 88 years in our example looking in both of the cases we will take 8 years as a premium payment term. And a policy term is 100 – the age of entry for example if your age is 30. If your 30-year-old and your policy term will be a hundred – 30 = 70 years okay.

We will take 30 years in an illustration. And minimum sum assured on maturity will be 3,00,000 it is based on the minimum payment that you pay minimum payment is 25,000 per annum in this slide it is mentioned 25,000 per annum also you can choose to pay half-yearly, quarterly, or monthly. Well, so now we will discuss the illustration of immediate income options the first option of this plan. So, let us see you30 years old and you pay the annual premium of 1,00,000for the premium payment term of eight years one 1,00,000 for eight years. Okay. So, you pay a premium for 8 years you start receiving the cash bonuses from your first policy year. So if you start investing from 2020 you will receive your cash bonuses from 2021 onwards all the way till 70 years.

The number of cash bonuses varies based on the company’s performance in a given year. From this figure, you can understand it well. So you are paying your premium for 8 years and you start receiving the cash bonuses from your first policy called first premium payment right 2021 and all the way till 70. So cash bonus can be thirty thousand or fourteen points five thousand assume at the rate of 8 percent or 4percent or even less or maybe none rated Because they are not guaranteed but in our illustration, we will take the best-case scenario of 30,000.

Okay. I am but is guaranteed in this case is some assured in maturity it is 8,00,000 in both of the assumed rates. Now let’s have a look at the best-case scenario. Sothis table will show you all the premiums that you pay and all the cash bonuses that you receive. So you are paying the premium plus GST for 8 years 2020 till2027 and you start receiving your cash bonuses from 2021 all the way till 2090and finally you will receive your 1.5 somewhere around 1.5 crores on maturity. Again it is not guaranteed. Okay. So the average rate of return will be 5%considering all the payments you pay and all the payments that you receive. So immediate income option is providing you with an IRR of 5% as the best cash bonuses assumed at 8%. Okay.

So do you think it is a great deal for your financial future? Getting 5% in 70 long years. Before we get to any conclusion let’s have a look at the other option of the Deferred Income Option of this plan. So here we are taking the same example your 30-year-old paying one lakh rupees for eight years. So in this option what is the difference you will also receive the guaranteed income along with cash bonuses you will receive cash bonuses but you will also receive the guaranteed income for a certain period. For the first 25 years. Ok, explain to you a little bit. For the first 25 years but you will receive the guaranteed income of twenty-eight thousand four hundred you will receive four twenty-four/twenty-five years after your premium paying term. Okay. Guaranteed income of twenty-eight thousand four hundred and cash bonuses of forty-two thousand six hundred per annum. And after five years you will only receive non-guaranteed cash bonuses as shown in this figure. So you are paying a premium for eight years and then you start receiving the guaranteed as well as the cash bonuses for 25 years. Guaranteed will be fixed as twenty-eight thousand four hundred for 1,00,000. For 1,00,000 premium and cash, bonuses are forty-two thousand six hundred in the best case scenario 8% assumed rate of return. And after 25 years, you receive seventy-one thousand. In the best case of8% average rate of return.

Okay. Now, let’s calculate the IRR. So, if we calculate the IRR of this figure, Guaranteed Income of first 25. No Guaranteed Income for 25 years onward. Cash bonuses of forty-two thousand six hundred for first twenty-five and seventy-one thousand four twenty-five years old and onward. So you can get the IRR to be 4.8% only. In the previous case, it is 5%. In this case, it is 4.8%. So you see, this IRR for the best case scenario at 8% 8% assumed rate of return. So, it is better not to consider the worst-case or average case. It will the yourIRR will go even lower. Okay. So four percent return rate or five percent return rate in seventy long years. don’t you think they’re a better option available for you? there are better investment plans available for you. If only you can care to explore a little bit further. So what is the final verdict there is NO reason why you should be investing in this plan for seventy long years and received a return of five percent which cannot even beat the rate of inflation? So though they came to pay the cash bonuses for seventy long years but none of these bonuses are guaranteed. Therefore you should avoid investing in as HDFC Life Sanchay Par Advantage Plan. And also save the money that you invest in this plan so what is the solution if you don’t invest in this plan what will you do? See you are investing in a plan for seventy long years. So you are looking for long-term investment. So you should consider EquityMutual Fund. And there you will get a long-term return in the range of 12 to 15 percent and you will experience the power of compounding in your invested capital. Let’s take an example. If you choose to invest rupees 8 lakhs as a lump sum payment into an equity fund within 25 years the future value of an investment will be 1.58 crores at the assumed rate of return of 12%. So have you noticed? Just 8,00,000 can make you 1.5 crores within 25year’s duration. HDFC policy is taking 70 years and they may it may make 1.5 crores or it may not. So it is not guaranteed in the case of an HDFC.

So you can keep invested for any number of years and your principal amount will get compounded you can also choose to invest through SIP if you don’t want to pay the lump sum payment. And also if you are risk-averse then instead of investing in this policy you can avail the benefit of a PPP account or FD scheme where you can get this assured rate of return of around 7 to 8%. So what should be the next step? So for more details, you should look at the detailed article on HDFC Life Sanchay Par Advantage Review.

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