I recently had to visit a bank and being a long time customer they took me to the manager's room for a quick chat; a chat to get me to buy some new insurance/savings product. Later during the chat I came to know that they wanted to reach their year end targets and so were forcing me to buy this before year end - I guess it's performance appraisal for them and some bonus perhaps!
When salesmen start pitching their product it all sounds rosy; they throw in terms like guaranteed benefits, maturity benefits, assured bonus, regular addition and what not. Even if you say that you will get back to them, they'll say that it will be good to take it right now!
Analysis
Back home, I looked closer into the product - out of the 3 amounts that they promised, 2 are dependent on what they announce at the start of every year! So it's not really a guarantee! Anyway, assuming that it is, I compared of what we would get if we were to take the traditional route: regular fixed deposit (FD) in the same bank along with a term insurance (insurance where you don't get back your premium).
And lo behold - it turns out that even after considering tax deductions on the FD interest, you would still do better to take a FD and term insurance rather than their new product. It confirms to the age old advice I've heard from people who analyze investment products - "Don't combine insurance and wealth generation; keep them separate - take 2 separate products."
But it is disheartening that many people still buy these products; and those in a lower tax slab will feel a bigger pinch - because the lower you're tax slab, the more money can make by going with the traditional route of FD + term insurance.
I wonder what the salesman would say if I showed him my calculation; I didn't have the time to sit with him, put a spreadsheet and do a comparison in the manager's room.
Well, I'm still tempted to do it - perhaps he would say that, "This reduces hassles because it is a single product" or perhaps he hasn't given this a thought.
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