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The secrets of guaranteed returns: Your money, our promise

Life is a journey filled with dreams and responsibilities or what we call the certainties of life - buying a home, educating our children, planning for retirement, and securing our family's future.

Author:Bhavna Verma | Date:28 Nov 2023 | Time:15:58:00

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Life is a journey filled with dreams and responsibilities or what we call the certainties of life - buying a home, educating our children, planning for retirement, and securing our family's future. Protecting these dreams is important. In the realm of financial products, non-participating or guaranteed returns insurance plans have emerged as a trusted companion that offers reliability and dependability. 

What are guaranteed returns plans?

Guaranteed returns insurance plans are designed to combine the benefits of traditional insurance policies and the assurance of certain returns. They stand out for their simplicity and reliability, are risk-averse, and help you achieve your life goals while providing financial protection for your loved ones. You could describe them as an investment in your dreams, a safety net for your family, and a promise for the future. 

Their advantages include: 

  • The promise of fixed returns 

  • Longer guarantees than traditional savings products such as deposits 

  • Steady income stream for self or your loved ones 

  • Long-term security for your goals 

  • Sizeable insurance cover in case of an unfortunate event  

Keeping your money safe 

Of course, life is unpredictable, as are the financial markets. Hence, customers often wonder how guaranteed returns plans can shield them from market volatility and ensure the durability of the promised financial guarantees over extended periods of time. How can you be sure that your money will remain safe during and after 30 or 40 years?  

This is where risk management, internal and supervisory governance of life insurance companies comes into play. The actuarial and risk functions are experts in managing risk and uncertainty, which is precisely what is needed to ensure that your money remains secure. 

Guaranteed returns plans are built on the foundation of statistical modelling and meticulous planning. Actuaries leverage sophisticated mathematical models to carefully price these guarantees, considering factors like long term outlook of interest rates, inflation, market volatility, and availability of hedging instruments to ensure your financial security. 

Insurance is a regulated industry and as such, guaranteed returns plans invest largely in sovereign debt instruments like government securities. These instruments carry the highest credit safety among all savings products because they are backed by the central government; in fact, they are considered as risk-free instruments. The pattern of investments is tightly regulated and monitored closely by internal governance committees.  

Life insurance companies are also required to provide adequate levels of upfront provisioning on the balance sheet as soon as a policy is purchased. Provisioning is the portion of its profits that a company sets aside to meet a future expense or liability. As dictated by professional standards for actuaries, the provisioning is done with prudential margins or what we call ‘margins for adverse deviation’ because they allow for unanticipated adverse deviations from expectation, as was experienced during the COVID-19 pandemic.  

With data as an ally, rigorous stress tests and scenario analyses are performed to anticipate a wide range of economic and non-economic conditions, ensuring that the guarantees remain intact, even in turbulent times. This data-driven approach assures that your investments are safe and your financial goals are achievable.  

Proof of the pudding

How does this work in practice? Let us take the example of the IndiaFirst Life Guarantee of Life Dreams or GOLD plan. This plan not only offers long-term financial stability but also flexibility in income options and rewards for financial discipline.  

Suppose you opt for a 30-year life cover with an immediate income option and an annual payout frequency. If you pay the first premium on October 1, 2023, you will start earning a known regular income from the end of the first policy year and will continue to do so for 30 years until October 2053 along with a return of total premiums paid at the end of 30 years. Income levels will escalate, again at a known pace, to provide an element of inflation protection.  

The plan guarantees assured returns and long-term income payout for the policy’s tenure – that is as long as the policy is in force and all premiums are paid. There are other guarantees too. For instance, if you have paid the full year’s premium for two years and take the life cover continuance benefit, the life cover will continue for one year even if you miss a premium and pay late along with the next premium due. Another highlight of this plan is that your financial journey can begin immediately, providing early income support for known expenses.  

Guaranteed returns bridge the gap between your financial aspirations and reality. IndiaFirst Life Insurance is committed to ensuring that these guarantees are more than just words - they represent a safe promise for your brighter tomorrow. 

BY

Bhavna Verma

As the Appointed Actuary at IndiaFirst Life, Bhavna Verma oversees all aspects of the actuarial function, including regulatory and shareholder reporting, product development and management, and financial and insurance risk analysis.Bhavna’s wide experience in Indian, Asian and the UK markets gives her expertise in all actuarial facets of life insurance. Prior to joining IndiaFirst Life, she was the Head of Actuarial Reporting and Risk at Kotak Life Insurance, where she spearheaded critical actuarial implementations for the company.Bhavna spent the initial years of her career in actuarial consulting at Willis Towers Watson, and briefly at Milliman, where she worked on a range of technical actuarial and strategic assignments across geographies. Bhavna is passionate about integrating the application of actuarial principles holistically across functions.She is a fellow of the Institute of Actuaries of India and a fellow of the Institute and Faculty of Actuaries, UK.

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