A friend of mine got the call. A pleasant voice, a plan with a reassuring name, and an offer that sounded tidy: pay ₹1 lakh a year for twelve years, and from the fifteenth year receive ₹2.25 lakh every year for twelve years. A life cover of ₹12 lakh sits inside it. And the best part, the caller said, is that the income is guaranteed.
He did the arithmetic while she was still talking. Twelve premiums of ₹1 lakh is ₹12 lakh going out. Twelve payouts of ₹2.25 lakh is ₹27 lakh coming back. More than double, with a guarantee attached.
These plans are sold on exactly that comparison, and the comparison is where the thing needs taking apart — not because the product is dishonest, since the insurer will pay what it promised, but because "guaranteed" answers a much narrower question than most buyers think.
Two totals are not a rate of return
₹27 lakh against ₹12 lakh is a ratio, not a return, because it silently assumes every rupee spent the same time in the plan. The first premium is committed for twenty-six years; the twelfth for fourteen. And the money does not come back in one lump either — it arrives across twelve separate years.
Adding rupees paid in different years, adding rupees received in different years, and dividing one total by the other produces a number with no meaning as an annual rate.
The honest measure is the internal rate of return. One spreadsheet column for every date on which money moves; the next for every premium as a negative amount and every payout as a positive one. Then use the XIRR function. That figure is what lets you compare this contract against a deposit, a bond, or anything else on equal terms. Ask the person selling it to show you the same calculation.
"Guaranteed" describes the rupees, not what they buy
The guarantee is nominal. It fixes the number of rupees you receive in year fifteen, year twenty, year twenty-six. What it cannot fix is what a rupee is worth on those dates. Prices rise — that is the one thing about the future nearly everyone agrees on, even if nobody knows by how much.
You can size the effect yourself without anybody's forecast. Pick an inflation rate you personally find plausible, compound it over the years until each payout arrives, and divide the payout by that factor. That gives you the payout in today's purchasing power.
So the plan removes one risk — that a market falls and your money is not there. It does not remove the other — that the money is there and does not stretch as far. Eliminating the first is not the same as eliminating the second.
The commitment is longer than it looks
Twelve years is a long time to promise ₹1 lakh a year, and life does not always cooperate. Ask what you would receive if you stopped paying after year three, or year six. On long-dated insurance contracts the surrender value in the early years is typically well below what you have paid in, because the setting-up costs have already come out.
The cover inside is a separate question
Judge the ₹12 lakh life cover on its own terms rather than as a bonus. The question is not whether ₹12 lakh is a large number, but whether it would be enough for the people who depend on your income if that income stopped.
What to ask before you commit
- What is the XIRR on the full schedule of premiums and payouts, using actual dates?
- Which parts of the payout are guaranteed, and which are not?
- What do I get back if I stop paying in year three, year five, year eight?
- Is the life cover adequate judged on its own?
- What do the payouts look like deflated by an inflation rate I actually believe in?
Certainty has genuine value, and some people sleep better knowing the exact number that will arrive. There is nothing irrational about paying something for that. The point is to know what you are paying — and to notice that the word on the brochure answers a question about market risk, not a question about what your money will be worth.
This article is general information for education only. It is not investment advice and does not take account of your circumstances. Investments in securities are subject to market risks; please read all related documents carefully before investing.
