Many savers across India are increasingly drawn towards insurance plans that come with the enticing promise of “guaranteed” returns. These schemes are marketed as safe, predictable, and free from market volatility, offering the comfort of steady growth without the ups and downs of equity markets. For many people who want assurance rather than uncertainty, the idea of earning 8% or even 10% annually can sound extremely compelling. However, the crucial question remains—do these insurance plans truly deliver what they promise, or is the reality far less rewarding than the initial impression?
Abhishek Kumar, a well-known personal finance expert, recently illustrated this very dilemma by sharing a real-life example. He described a situation where a bank manager pitched a customer an insurance product with claims of “guaranteed 8%, maybe even 10% returns.” On the surface, this seemed like an excellent opportunity for safe wealth accumulation. But when Kumar examined the product more closely and ran the actual numbers, the outcome revealed a much less impressive picture than what the glossy brochure suggested.
According to the details of the policy, the investor was expected to put in ₹2 lakh every year for a period of 8 years, making the total investment ₹16 lakh. At maturity, after a span of 30 years, the projected payout stood at around ₹48 lakh. At first glance, this seems like a substantial gain—tripling the invested amount. Yet when the internal rate of return (IRR) was calculated, the actual yield came down to just about 6% annually. This is far below the attractive 8–10% figures often quoted during the sales pitch, revealing a clear gap between expectations and reality.
The reason behind such underwhelming returns lies in the way these products are structured. The so-called “guarantee” is often only partial, with much of the projection depending on non-assured bonuses or assumptions that may not always materialize. In addition, the long lock-in period of several decades reduces liquidity, meaning that investors cannot easily access their money if they need it. On top of this, marketing figures usually gloss over hidden costs and the actual time value of money, both of which reduce the effective returns.
Kumar suggests that for most individuals, there are better strategies to achieve both financial protection and long-term growth. A more effective approach is to buy a simple term insurance plan for life coverage and then separately invest in instruments such as Public Provident Fund (PPF) or diversified mutual funds for wealth creation. This method not only provides flexibility but also has the potential to deliver higher and more realistic returns compared to bundled insurance-cum-investment products.
That being said, Kumar does not dismiss such “guaranteed” policies entirely. He acknowledges that for individuals who are extremely risk-averse and place a very high value on predictability, these plans can still serve a purpose. For such people, sacrificing higher returns in exchange for the assurance of stability might feel worthwhile. However, he cautions investors not to fall for inflated claims of 8–10% guaranteed growth, as those numbers rarely reflect the true outcomes.
The most important takeaway for savers is to carefully assess the internal rate of return before committing to any policy. Financial experts strongly advise comparing these insurance-based investment products against alternatives like mutual funds, fixed deposits, or government-backed schemes. Such comparisons often reveal that the so-called guaranteed plans underperform in the long run. As Kumar rightly summarized, the glossy promises may appear attractive at first, but the actual reality—when carefully analyzed—often tells a very different story.
