The word ‘guaranteed’ has a strange aura to it and it can suspend all our logical senses to consider and buy whatever investment is on offer. Insurance companies have used this aspect to sell (missell) anything and everything to the unsuspecting investors.
It is not uncommon to see 10%, 12% guaranteed income numbers being thrown around. Pay premium of Rs. 1 lakh for 10 years and get Rs. 1 lakh in income per year from year 12 to year 20. Also, get the entire premium paid back at maturity.
Hey, while we are at it, I will also throw a 5% maturity bonus.
I mean, who wouldn’t start salivating at the 10% return + a bonus at maturity.
The question to ask though is – 10% of what?
Answer: 10% of the total premium paid. In this case, Rs. 1 lakh is paid every year for 10 years, making a total of 10 lakhs. 10% of it is 1 lakh.
But numbers in finance have a a funny way of working and it is not exactly the way described above. Money has time value – opportunity cost.
The first 10 years you are only paying premium and not getting anything back. There is a time value/ opportunity cost associated there. The insurance agent/bank/distributor very conveniently skips this fact.
So, what can you do?
Don’t worry. Now you have a powerful tool to find out the ugly reality of guaranteed returns.
If you can’t see the calculator above, use the following link.
Click here to use the Real Returns Calculator from Unovest.
It will help you figure out what is the real return of the investment offered to you. Use this power to make an informed decision and not fall for just the tax-free, guaranteed return pitch.
Do not forget to share it with your friends, family, colleagues who might just be falling to these deceptive schemes.
As always, I look forward to your feedback and comments.
