A life insurance benefit illustration shows what a policy would pay each year if the insurer's investments earned 4% or 8% a year before charges, two rates IRDAI sets for every insurer, next to what the policy guarantees. Only the guaranteed benefits are promised: the 4% and 8% columns are neither your return nor a forecast. On Bindu's illustration below, the ₹18 lakh she was shown sits in the 8% column, and the guaranteed figure is ₹4 lakh smaller.
What do the 4% and 8% columns mean?
IRDAI's master circular on life insurance products (12 June 2024) requires every insurer to give you a customised benefit illustration at the point of sale. Any plan whose benefits are not all fixed in rupees at the start must show guaranteed and non-guaranteed benefits at two gross investment return rates, currently 4% and 8% a year (annuities apart).
A gross investment return is what the insurer's fund is assumed to earn before anything comes out. Your premium also pays for the life cover, the insurer's expenses and the seller's commission, so what reaches you is well below 8% even if the fund earns it. The two rates are scenarios, so plans can be compared.
On a participating (traditional) plan, the non-guaranteed part is the bonuses: reversionary bonuses added each year and a terminal bonus at the end, none of them guaranteed until the insurer declares them. An illustration with no 4% and 8% columns belongs to a plan whose every benefit is fixed at the start, such as a non-participating savings plan.
Bindu's illustration: ₹18 lakh in the 8% column
Bindu, 34, earns ₹22 lakh CTC. She is shown a participating plan: ₹1,00,000 a year for 15 years, ₹10 lakh of life cover and ₹18,00,000 at maturity. She would pay ₹15,00,000. The ₹18 lakh is the 8% column's total, guaranteed sum and bonuses together.
Her illustration's maturity row reads as below (an example; figures vary by plan and insurer).
| Maturity value, year 15 | Guaranteed | Non-guaranteed bonuses | Total |
|---|---|---|---|
| Guaranteed only | ₹14,00,000 | nil | ₹14,00,000 |
| At a 4% gross return | ₹14,00,000 | ₹1,30,000 | ₹15,30,000 |
| At an 8% gross return | ₹14,00,000 | ₹4,00,000 | ₹18,00,000 |
Only the ₹14,00,000 is promised: ₹4 lakh below the headline and ₹1 lakh below what she pays in. IRDAI does not fix the guaranteed maturity value, but its Insurance Products Regulations, 2024 set the guaranteed surrender value in the last two policy years at no less than 90% of premiums paid, ₹13,50,000 for Bindu in her final year. Her guaranteed ₹14,00,000 sits just above that.
To turn ₹18 lakh into a yearly return, endowment policy vs term insurance shows the method.
What do the death benefit and surrender value columns show?
The death benefit column shows the cover, which the 2024 rules set at no less than 7 times the yearly premium for buyers who join before 50 (5 times from 50), and at least 105% of premiums paid. Bindu's ₹10 lakh is ten times her ₹1 lakh premium, exactly the 10% limit in section 10(10D) of the 1961 Act, so her maturity value is tax-free as long as her yearly premiums on all non-ULIP policies issued from 1 April 2023 stay within ₹5 lakh.
The surrender value columns show what quitting returns. The illustration states, year by year, the guaranteed surrender value, the special surrender value and the surrender value actually payable. The guaranteed one is at least 30% of premiums paid in year 2, 35% in year 3 and 50% in years 4 to 7: ₹60,000, ₹1,05,000, and ₹2,00,000 to ₹3,50,000 on her plan.
Sold from 1 October 2024, her plan pays a special surrender value once the first policy year is complete and one full year's premium is paid. Stopped before then, it lapses; stopped after, it becomes reduced paid-up. If Bindu stops after three premiums, her paid-up maturity value is at least ₹2,80,000, three-fifteenths of the guaranteed ₹14 lakh, plus bonuses already added. Surrendering in year 3 instead returns at least ₹1,05,000 of the ₹3,00,000 paid. The guaranteed minimum never reaches what she has paid, even at 90% in the last two years; the special surrender value can be higher than that minimum.
A ULIP's illustration must give the net yield at 8%, the return left after charges other than the cost of cover; IRDAI's rules for traditional plans carry no such line.
What should you check before you sign it?
You and the seller both sign the illustration, and it becomes part of the policy document. A spoken figure above the 8% column, or a claim that bonuses are assured, is not in that record.
Before signing, compare the guaranteed maturity value with what you pay in. Read the surrender values for years 2 to 5, in case the premium gets hard to pay. And check the cover: ₹10 lakh is a fraction of the ₹2.2 crore to ₹3.3 crore that the 10 to 15 times yearly income rule of thumb in the insurance planning guide suggests at ₹22 lakh. If the policy differs from what you were shown, you can return it within the 30-day free-look period, less stamp duty, any medical examination cost and the cover used. Five questions on cost apply to any plan.
Dhi answers your questions about a policy from your own numbers, with your protection, cash flow, net worth and goals in one view. Dhi earns no commissions and never mis-sells.
Frequently asked questions
This is general information for salaried individuals in India, not personalised financial advice.
