Bharti AXA Flexi Save: Needs more glitter :: Business Line

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Bharti AXA Life Flexi Save is a traditional participating endowment plan where the policyholder gets the sum assured plus a non-guaranteed benefit on surviving the term of the policy. The non-guaranteed benefit will be in the form of simple reversionary bonuses and a terminal bonus . On a death claim, the accrued bonus, if any, is paid out with the sum assured.

Reversionary bonus is a bonus that is paid regularly from the profits of the company. Once declared, it becomes a part of guaranteed benefit on the policy. This amount is, however, paid out to the policyholder only at the time of maturity of the plan.

The policy has three premium paying terms- 5/7/12 years with policy term of 20/25/30 years, respectively. It has an add-on cover for hospitalisation for additional premium. This product is the first endowment plan to be launched after IRDA’s new regulations on traditional plans and offers higher surrender value according to the new mandates. A unique feature of the product is that it lets policyholders exit the plan at any time during the last 10 years of the policy term with full maturity benefits (sum assured plus the bonuses, if any).

Being a traditional plan, the product’s brochure is silent on charges. But these tend to be high for traditional plans.

LIC’s traditional plans usually pay the highest amount of bonuses. Returns from its stable are usually around 7-7.5 per cent, which is among the highest in the industry. HDFC Life offers returns that are lower then LIC’s but is better compared with the rest of the industry.

Other insurers’ traditional products have barely managed 4-5 per cent returns. According to the illustration provided by the company, a 35-year-old man would pay an annual premium of Rs 30,000 for five years, to receive Rs 1,69,943 as sum assured plus Rs 1,32,300 as bonus on maturity. This takes the total maturity proceeds on the plan to Rs 3,02,243, an annual return of 4 per cent.

OUR RECOMMENDATION

The returns indicated do not appear very attractive. Bharti AXA Flexi Save is also offering only a simple reversionary bonus (a compounded bonus would allow higher cumulative returns). A host of insurers are set to re-launch their traditional products adhering to the new norms from IRDA. It may pay to wait and see if they will offer better terms.

Compared to market linked plans, the lack of transparency in traditional plans is also an issue. The new norms fail to address this with respect to traditional plans.

If you intend to build a long-term investment portfolio, an endowment plan is not the right choice. Even the best performing endowment products in the market do not generate more than a 7 per cent return, which may not be sufficient to beat inflation.

Separate insurance and investment. Take a term cover to secure your future.

Invest in equity or balanced funds and take exposure to debt options such as PPF, depending on your risk appetite.

Investments in PPF earn around 8.7 per cent (for 2013-14). If you see endowment plans as a tax saving instrument, note that investments in PPF too can do that for you. The amount invested, the interest earned and also the maturity proceeds from a PPF are tax exempt.