Review: Kotak Assured Income Plan

Kotak Assured Income Plan is a traditional savings cum protection plan with 15 years premium paying term and provides protection for 30 years. The highlight of the plan is guaranteed tax free annual income for 20 years to the policyholder from the 10^th policy year until the maturity i.e. for a period of 20 years. The plan also pays, apart from the guaranteed annual income, a lumpsum amount of maturity that will be 104-110% of the basic sum assured. The plan also offers rides for extra protection and loan facility.

Let’s have a look on what you pay and what you get. The returns are based on a 30 year old healthy person:

Annual Premium	Life Cover/ Death Benefit	Total Premium Payable During Policy Term	Guaranteed Income	Total Guaranteed Income Received	Lump-sum receipt on Maturity	Total Returns From Kotak Assured Income
	10 Times The Annual Premium	Premium Paying Term is 15 Years	From 10th Till 30th Policy Year	Cumulated for 20 Years	107% of Sum Assured	After 30 years
10,000	1,00,000	1,50,000	9,100	1,82,000	1,07,000	2,89,000
25,000	2,50,000	3,75,000	24,000	4,80,000	2,67,500	7,47,500
50,000	5,00,000	7,50,000	48,000	9,60,000	5,35,000	14,95,000
75,000	7,50,000	11,25,000	75,000	15,15,000	8,02,500	23,17,500
1,00,000	10,00,000	15,00,000	1,01000	20,20,000	10,70,000	30,90,000

Let’s go through the features now:

1.  Guaranteed Returns:

As mentioned early, the major highlight of this plan is the guaranteed or assured annual returns for 20 years from the 10^th policy year. The annual tax free guaranteed percentage returns depend upon the premium that you pay. The assured returns range from 9.10% to 10.10% per annum of the sum assured.

Premium Bands	Assured Annual Income
Up to Rs. 24,999	9.10%
Rs. 25,000 to Rs. 74,999	9.60%
Rs. 75,000 and above	10.10%

2.  Premium Payment Period:

The premiums are to be paid for the period of 15 years.

3.  Life Cover:

The plan offers you the sum assured 10 times of the annual premium for 30 years. In case of death of policyholder during the policy term, the nominee/beneficiary will get the basic sum assured.

4.  Maturity:

The plan matures after 30 years. So in addition to giving a assured income for 20 years, the plan gives you a lumpsum equal to 104% to 110% of Basic Sum Assured on maturity.

5.  Riders:

The plan gives you the following riders for additional protection:

v  Kotak Accidental Death Benefit (ADB)

v  Kotak Permanent Disability Benefit (PDB)

v  Kotak Life Guardian Benefit (LGB)

v  Kotak Accidental Disability Guardian Benefit (ADGB)

6.  Eligibility:

v  Age at entry: 0 to 60 years

v  Age at maturity: 30 to 90 years

v Minimum & Maximum Premium: The minimum is Rs. 10,000 per annum and has no maximum limit. However the maximum amount always depends upon the financial and insurance writing norms.

7.  Loan Facility:

After the policy completes 3 years, you can avail a loan against your policy. The maximum loan can be up to 80% of the surrender value and the rate of interest will be declared by the company from time to time. The minimum loan amount is Rs. 10,000.

8.  Surrender Value:

The policy acquires guaranteed surrender value of 30% of the premiums paid after 3 years. However it excludes the first premium and the rider premiums.

9.  Tax Benefits:

The premiums paid are eligible for tax deduction under section 80C and the annual guaranteed income will be tax free as per current tax laws.

Should You Take This Plan?

The people who seek the capital protection with guaranteed returns year after year may go for it. So if you would rather prefer the guaranteed returns with peace of mind and are not comfortable with the uncertainties and high risk market linked products where the returns are tied to market performance, then go for it. Among the traditional investment products on offer by insurance companies, this is certainly the excellent plan. However if you need a bigger life cover, check term plans. 

Infrastructure Bonds At A Glance.

Infrastructure Bonds: Additional tax savings

Last year, the tax payers were made available an additional deduction of Rs. 20,000 under Section 80CCF. This deduction is available for this year as well over and above the Rs. 100,000 deduction allowed under Section 80C. Under Section 80C an individual is allowed a tax exemption of Rs. 100,000 for investing in specified instruments that include insurance policies, ELSS funds, Provident Funds, Public Provident Funds etc. While some of these exemptions will undergo a change with the introduction of New Tax Code (it is expected from the new financial year), the current year tax exemptions allow for a Rs. 100,000 under Section 80C. It is in addition to this limit that a Rs. 20,000 exemption is allowed this year for investments in Infrastructure bonds under Section 80CCF.

Who can avail of this additional exemption under Section 80CCF?

As per the applicable Section 80CCF, any individual or HUF can invest in these bonds to avail a tax exemption up to a maximum of Rs. 20,000 in the current financial year. For a taxpayer in the highest tax bracket of 30%, such an investment can result in tax savings of approximately Rs. 6,000.

Which companies can issue infrastructure bonds under Section 80CCF?

The tax exemption will be available for investments in infrastructure bonds issued by institutions such as LIC, IDFC, IFCI and others as notified by the Reserve Bank of India as being non-banking finance companies operating in the infrastructure sector.

How does an investment in these bonds work?

These bonds are available for a minimum tenure of 10 years with a lock-in period of 5 years. This basically means that you cannot exit from the bonds for a period of 5 years. At the end of 5 years, investors will typically have an option to avail a buy-back by the issuer, trading it in the secondary market or take a loan by pledging the bonds with specified banks. The interest rates available on these bonds will vary from issuer to issuer and investors can typically opt to either receive interest annually or on a cumulative basis at the end of the holding period.

From a taxation perspective, while the investment in these bonds will allow you to avail of a tax exemption up to a maximum of Rs. 20,000, the interest paid on these bonds is taxable in the hands of the investor. The onus to declare such income and pay applicable tax on it will be on the investor.

Should I invest in infrastructure bonds?

The decision to whether or not to invest in these bonds should be taken keeping in mind the tax savings that you will make by these investments and comparing these against the tax payable on the interest earned and the opportunity loss of not having invested in any other alternate investment options which could give you higher returns.