Personal Investment: A Quick Note on Guaranteed Return Plan

A guaranteed return plan, as the name signifies, provides guaranteed returns or incomes to policyholders An individual gains from the life coverage benefits.

Unlike other life insurance products, a guaranteed return plan not only provide life insurance coverage in case of the death of the policyholder but also provides a maturity benefit after the guaranteed return plan matures.

In a guaranteed return plan, a policyholder can draw tax benefit that is offered on the premium that is paid under Section 80C of the Income-tax Act (ITA) of 1961. In addition, the maturity benefit received is also tax-exempted as per Section 10(10D) of the ITA.

It is a relatively safe investment option as such a plan is comparatively less affected by market fluctuations. For instance, it is safer to invest when compared to other investment vehicles such as mutual funds, unit-linked insurance plans (ULIPs), or equities, among others.

A guaranteed return plan offers individual financial protection along with their family members as well.

A point to note is that considering that guaranteed return plans have lower risks, the subsequent returns that an individual gets are also less. Most guaranteed return plans offer returns in the range of 5-7%.

However, as compared to bank fixed deposits (FDs), guaranteed return plans tend to offer a significant appreciation in the amount invested. Also, while the maximum lock-in period in FD is 10 years, in a guaranteed return plan, policyholders can lock their money for a period of over 45 years. This way, greater returns can be expected out of guaranteed return plans on a long-term basis.

An investor can also get flexibility when it comes to payouts. For example, as per their convenience, an investor can either get returns on a monthly basis or even receive lump sum payments on a yearly basis.