I am receiving calls from Bajaj Allianz to invest in their early retirement plans. They have mentioned that I will get tax free retirement income until the age of 99. What is your opinion on the plans?
Recently you would have seen ads on TV and radio by Bajaj Allianz for their early retirement plans with the tag line “Why wait for tomorrow mujhe jeena hain today!”
I will review one of their plans from their “early retirement plans” - The LongLife Goal Plan.
Here is a screenshot from the TV ad:
I will model this review as a series of questions and answers to help convey the points faster. This review was originally posted here - Review of Bajaj Allianz Early Retirement Plans - LongLife Goal
Minimum Rs 60,000 per year. There is no maximum limit.
For minimum of 10 years, to a maximum of 25 years! You can choose a number between 10 and 25. This is called the premium payment term (PPT).
Returns will be linked to the stock market i.e. the company will invest your premiums in equity & debt instruments i.e. the stock market and the bond market. Just like in regular mutual funds.
This plan belongs to a category of plans called “Unit Linked Insurance Plan” or ULIP. They invest your premiums in the stock and bond market.
Bajaj Allianz offers you 8 choices of funds that you can choose from, to invest your premiums:
Here are the returns of their of their funds for the last 5 years (as on 14th Sept, 2019). Screenshot taken from Bajaj Allianz website.
Did you see the option 2 in the above list? If you choose that option they will invest your premiums in liquid instrument, which is exactly what liquid mutual funds do! So why not directly invest in liquid mutual funds?
As mentioned above you can do “partial withdrawals” after 5 years or full withdrawal (i.e. surrender the policy). If you surrender the policy you will simply get the value of your fund back, just like you get in mutual funds.
There is a limit to the amount of money you can partially withdraw:
The Fund Value should not fall below 105% of the Annualized Premium * PPT, after a partial withdrawal.
So if you choose to invest Rs 1 lakh for 10 years, then you can only do partial withdrawals if the value of your investments is greater than Rs 10.5 lakhs.
Errrmm, Exactly! Your premiums will be invested in investment funds managed by Bajaj Allianz and you will be allotted units of these funds. Just like you are allotted units of mutual funds.
But with the added disadvantage of that you cannot withdraw any money for 5 years! And you cannot fully withdraw the money until your age of 99. Unless, of course, if you decide to surrender the policy.
Yes, you read that right. I will mention it again so that the message hits home.
YOU CANNOT FULLY WITHDRAW YOUR MONEY UNTIL YOU TURN 99 YEARS, UNLESS YOU SURRENDER THE POLICY.
Frankly speaking, I don’t know why would anyone want to read further. The above info should be sufficient for you to decide that you should not invest in this plan!
You can opt for systematic withdrawal of the funds once you reach the age of 55 years or the policy has completed 10 years, whichever is later. So the minimum age when you can exercise this option is 55 years. I thought they were talking about early retirement … hmm.
The company calls this Retired Life Income (RLI). You can also choose the amount to be withdrawn every year i.e. between 0-12% of the fund value.
For example, you can choose to withdraw 10% of your fund value every year after the age of 55. This is exactly like redeeming units of mutual funds at regular intervals. It is just that in this case the company is doing them for you.
I don’t know why they have given it the fancy name Retired Life Income (RLI). You are simply redeeming units of your investments.
No you did not miss it. There is no such thing as early retirement in this policy. It is just a misleading marketing gimmick by the company.
YES and NO.
The sum assured is higher of:
Example, if a 30 year old invests Rs 1 lakh per year in this policy, then he will get an insurance cover of Rs 10 lakhs.
To put it bluntly, if you die then your nominee will receive Rs 10 lakhs. Is that a sufficient insurance cover for you? You decide. No, actually read this: How to evaluate term insurance coverage and price?
This is the actual extract from the policy brochure:
It basically says that if you die and if your investments have performed well then your nominee will receive the fund value (your premiums paid and any returns accrued).
This is also what would happen if you invest in mutual funds. Your nominee will get your MF units, which they can redeem in the market.
So this policy provides an insurance only until the value of your fund is less than 105% of the total premium paid.
This is what the brochure says:
Premium paid, Maturity Benefit, Death Benefit, partial withdrawal, Retired Life Income and Surrender Benefit may be eligible for tax benefits as per extant Income Tax Act, subject to the provision stated therein.
You are requested to consult your tax consultant and obtain independent tax advice for eligibility and before claiming any benefit under the Policy
Good luck trying to figure it out!
Their website mentions many other benefits like:
If you actually read their terms and conditions then you will realize that the benefits are very tiny. For example, the company will add “loyalty additions to your fund value” to remain invested in this policy.
Let us say you invest Rs 1 lakh every year. Then from the 5th year to 9th year, the company will add Rs 2000 to you investments. See the table below. This is a very very tiny benefit.
The core benefits of the policy are non-existent. So these additional tiny benefits should not make any difference to your decision, which should be “DO NOT INVEST IN THIS POLICY”.
So what should I do for early retirement?
Prepare a comprehensive financial plan for yourself. Just like the one illustrated here Financial Planning for a 30 year old salaried professional. For example, if you wish to retire by 45, the financial plan will tell you exactly how much you need to invest on a monthly basis so that you can comfortably retire at 45.
You can get this plan prepared on DhanWise at no additional cost. Give it a try.
Sachin Shah is a 30 year old Senior Software Engineer, working at an IT services company in Bengaluru. He and his wife want to plan for their retirement and also want to save for their child's education, wedding and for buying a car.View Case Study