Whenever you meet any insurance agent he will show you plan presentation with returns %. But have you gone through how actually he calculate returns? I think not many. So in today’s post let us see ways of manipulation of returns by few agents 🙂
1) Bonus Rates-This applies to traditional plans. Because in traditional plans your returns are based on the bonus declared by Insurance company yearly. In this case insurance agents usually considers the highest bonus rate paid for particular product or else they will change bonus rate in their software and show you the manipulated returns. One more case may be , they considers the average rate too. But no one can predict the future bonus rates. Because bonus rates depend on insurance company’s profitability. Hence whenever you see the presentation, it is better to check what bonus rate your insurance agent considered to arrive at % of returns. You may find bonus rates by visiting individual insurance company web sites.
2) Taxability-This type of presentation is rampant. They will show you the tax benefit you will get by investing in the plan proposed by agent. For example, suppose actual premium payment is Rs.75,000 per year, they will calculate the tax exemption benefit you will get by paying this premium. If you are under 30% tax bracket then they will show in their presentation the paid premium as Rs.52,500. So automatically returns will show high eventhough bonus rates are very low. But as per current law, suppose you are paying premium of Rs.10,000 yearly then Sum Assured must be Rs.1,00,000 to avail the benefits of exemption. If your premium is more than 10% of Sum Assured then entire maturity will be taxable as per the prevailing tax rate for you.
They are eager to show you the tax benefits what you will get but they will not show you the taxability on maturity. Reasons they may say are, we can’t predict the future tax rules or on maturity your income+life insurance maturity may fall under exempted limit. But in my view when you are not considering the future taxation issue then why so eager to consider the tax benefit of today?
3) NAV for ULIPs-During presentation about ULIP product, your agent may show you the performance of fund which is the product of the same insurance company but different plan. Hence need careful attention and ask your agent how he arrived at the % of return he showed to you.
So think and deciding before believing the rosy returns shown by your agents.