# So Who’s Actually Becoming Cash Rich Out Here?

I was reading this ad for Bajaj Allianz Cash Rich Insurance Plan (in a recent issue of a personal finance magazine) when something about the calculations just didn’t seem right. In fact, they smelt downright fishy in painting a rosy picture of your retirement facilitated through this policy. I wanted to figure out who’s actually becoming cash rich here — You (as you’d obviously expect) or the Insurance Company?

First, how about the ridiculous Rs 10,284 as monthly premium for the next 240-months! Who, even in their worst financial state of mind, would be mad enough to get into such a contract to begin with? I then ran some simple calculations using Excel. As you can see, you turn into a real cash-cow for the Insurance Company a few years into the policy when the corpus accumulated with the Insurance Company exceeds the Sum Assured on the policy. When that happens — and that’s an event that is statistically guaranteed to have the highest probability of occurrence — the Insurance Company already has the cash (generated off the premiums you paid) to pay the Sum Assured. No sweat!

Then, I projected the numbers over the life of the plan. As you can see, the money that the Insurance Company is earning off you is several orders of magnitude higher than what its liabilities (what it owes you in the form of cash backs and one-time pay outs) are. Compounding at its brilliance. But compounding that’s against you!

I wonder who’d buy such a policy! You wouldn’t right?

#### 7 thoughts on “So Who’s Actually Becoming Cash Rich Out Here?”

1. @Ravi: Thank you. The math behind it is quite simple. This knowledge ought to become mainstream. Request you to kindly forward to your friends or colleagues.

2. Rakesh says:

Vinaya,

Once again excellent analysis. My wife had taken a ULIP from Bajaj 5 years back and the first year charges was 90%, would you believe it. We sold the policy after 4 years and just managed to recover the investment amount.

3. @Rakesh:

90%! Wow! Did the agent tell you about all these charges when you bought the policy? I think ULIPs should actually expand to “Unit Loss Investment Plans.”

4. Rakesh says:

@Vinaya,

I was not married then, their family friend had insisted them to buy this policy.
I don’t think he told them the charges nor did they bother to ask.

5. Vinaya HS says:

@Rakesh:

Much like Amway. It’s always either a relative or a family friend. :-)

6. manish says:

brilliant anaylsis dude u rightly said the compounding will work against u instead of investing in this expensive product with such a inadequate s.a itz better to buy term insurance and invest the difference in m.f or in ppf.