An improved traditional plan

Bharti AXA's Invest Once is a single-premium product targeted towards the youth

During this time of the year, a number of companies seek investment details from their employees. This is to match the declaration they have made during the start of the year with the actual investments made. And if the investments fall short, the employee is taxed. November and December are, therefore, the months when insurance and mutual funds start launching products to lure taxpayers.

To attract internet-savvy young salaried, Bharti AXA Life Insurance has launched a single-premium guaranteed plan, Invest Once, which can be bought online. “This is targeted for young adults in the age group of 25-35 years and that’s why we have kept it completely online,” says Mudit Kumar, chief and appointed actuary at Bharti AXA Life Insurance Company.

This is a single-premium traditional insurance policy. This means, a person needs to pay only once during the entire policy term and can choose either a five-year or 10-year period. The insured gets seven per cent guaranteed addition of the premium paid in a five-year term and for a 10-year term, it’s nine per cent. To make it work for investors across the income categories, the company has kept minimum premium at Rs 5,000.

However, traditional plans are not tax-efficient and the company realises this. Income tax rules say if the premium in any year is more than 10 per cent of the sum assured, the proceeds will be taxed on maturity. If a person is paying premium of, say, Rs 5 lakh, the cover he or she would get in Invest Once is only Rs 7 lakh. Bharti AXA Life Insurance has an option to increase the cover by 10 times to make it more tax-efficient. The person needs to pay additional money.



A 45-year-old non-smoker paying a premium of Rs 6.17 lakh (including taxes and enhanced cover) for a 10-year period will get Rs 9.5 lakh if he survives at the end of the tenure. The cover he will get in this case will be Rs 59.54 lakh.

While the returns on the product is better than most traditional policies offer, financial planners say in one-time premium payment plans, insurance companies charge an upfront insurance fee, which works like a pre-paid product. If the insured dies during the policy period, insurance companies have already recovered the entire premiums at one go. Then there are also deductions if the person surrenders the policy midway.

That’s why financial planners suggest term plans with annual premium option. In the example above, if you opt to buy a separate term cover and put the remaining premium in a public provident fund (PPF), the return will be superior, says Malhar Majumder, a certified financial planner.

“The person will also be able to claim tax benefit on both the product and the proceeds from PPF is tax-free, too.” For even superior returns, the individual can look at equity-linked savings scheme, which is also equally tax-efficient.

Financial planners say it always helps to keep insurance and investments separate.