When and why you should invest in guaranteed returns insurance plans

Guaranteed returns insurance plans are currently offering up to 7.5%. But, for people looking to invest, it is essential to know that this lucrative return may not last indefinitely. Market dynamics and fluctuating interest rates may soon impact the plans that, for now, are offering attractive returns.

Vivek Jain, Head of Investments at Policybazaar.com, said, “The introduction of long-term capital gains (LTCG) tax in equity mutual funds in 2018, LTCG tax on Unit Linked Insurance Plans (ULIPs) for premiums exceeding Rs 2.5 lakh in 2021, and tax on maturity in debt mutual funds in 2023 are essential factors to consider while making investments. Additionally, proceeds from traditional life insurance plans issued on or after April 1, 2023, are no longer exempt from taxes with annual premiums exceeding Rs 5 lakh.”

However, policies with a premium below Rs 5 lakh remain within the exemption bracket. Therefore, by promptly investing in these investment-cum-insurance products, you can get decent interest rates and effectively pursue some of your long-term goals. Here are the reasons why you can opt for the guaranteed return plans:

High and tax-free returns 

These plans offer the advantage of tax-free, assured, and higher returns of up to 7.5%, depending on the plan. Jain said, “This feature outperforms options like PPF or the taxable and fluctuating returns of fixed deposits (FDs) where the post-tax return is around 5%.” Guaranteed return plans offer inflation-beating returns that can be locked for as long as 45 years and, therefore, your best bet in traditional plans. These returns are also tax-free up to Rs 5 lakh of annual premium, translating to significant savings over the years. 

Immune to market fluctuations 

Not everyone has the risk appetite to stomach the market’s volatility. Thus, these plans offer a unique advantage by locking in the interest rate for the policy’s tenure at the time of investment, ranging from 5 to 45 years. This works well during economic uncertainty and leads to secure and anticipated returns upon maturity. To illustrate, if you invest Rs 40,000 monthly in a guaranteed return plan, at the end of a five-year tenure, you would have invested Rs 24 lakh, and at the end of 10 years, you can expect a corpus of Rs 41.7 lakh with a profit of around Rs 17 lakh, which will be completely tax-free and unaffected by market conditions.

Flexibility in pay-outs 

While guaranteed return plans are advantageous for long-term investments, they have a component of flexibility and liquidity that makes them appropriate for short-term financial planning. Jain said, “The policyholder can choose a recurring income plan with the option of monthly or quarterly pay-out or a plan that offers a lump-sum amount. Additionally, if you surrender during the income period, you will still receive the fund value at a discounted rate, which remains profitable considering the income already generated. This flexibility allows investors to align their investments with evolving needs and goals. However, locking in your money for the long term is always recommended.”

To conclude, guaranteed returns plans offer a compelling investment option for risk-averse individuals seeking high returns and tax-free income. However, to avail of its benefits, it is advisable to act swiftly by comparing online options. Also, read carefully and understand all relevant documents.