Guaranteed Return and Endowment Plans: How to Find the Real IRR
Last updated: 13 October 2026
Quick answer: The real return of a guaranteed return or endowment plan is its IRR (internal rate of return): the yearly rate that equates the premiums you pay with the benefits you receive. List premiums as negatives and payouts as positives by year, then use Excel's =IRR(). Most such plans work out to 5-6.5% a year, tax-free only if total premiums stay within ₹5 lakh a year.
Last updated: 13 October 2026 Quick answer: The real return of a guaranteed return or endowment plan is its IRR (internal rate of return): the yearly rate that equates the premiums you pay with the benefits you receive. List premiums as negatives and payouts as positives by year, then use Excel's =IRR(). Most such plans work out to 5-6.5% a year, tax-free only if total premiums stay within ₹5 lakh a year. Key takeaways Headlines mislead: "₹37 lakh on ₹12 lakh" in our income-plan example is an IRR of just 5.3%. Typical range: our three illustrative plans return 5.3-6.0% a year. Benchmarks: PPF pays 7.1% tax-free (Oct-Dec 2026); a 6.4% FD falls to 4.4% after 30% tax. ₹5 lakh rule: policies issued from 1 April 2023 with total premiums above ₹5 lakh a year are taxable at slab rates. Real benefit: a locked, guaranteed rate for 15-30 years, with no reinvestment risk. The brochure says "Pay ₹1 lakh a year for 12 years and receive ₹37 lakh". Tripling your money with a guarantee sounds unbeatable. But the ₹37 lakh arrives over 25 years, starting 13 years after your first premium. Measured properly, that is about 5.3% a year. A guaranteed return plan is a non-participating life insurance savings policy that promises fixed benefits, in a lump sum or as regular income, in return for fixed premiums. An endowment plan pays a sum assured plus bonuses at maturity, or on death. Both bundle life cover with savings. This guide shows how to find their real return in five minutes, works through three examples, and explains the 2026 tax rules. As a distributor of Tata AIA policies, we sell such plans; this is how we suggest every client tests them. Why "money multiple" is the wrong way to judge a plan Insurance illustrations show total premiums and total benefits. The ratio between them ignores when each rupee moves. A rupee received in year 37 is worth far less than a rupee paid today. The IRR fixes this by finding the single yearly rate at which the present value of everything you pay equals the present value of everything you get. IRR is the same idea as XIRR in your mutual fund statement; our guide to XIRR vs CAGR vs absolute return (/insights/xirr-vs-cagr-vs-absolute-return) explains the maths. Once you have an IRR, you can compare a policy directly with PPF, FDs or bonds. Guaranteed return plan IRR examples: headline money multiples of 1.75x to 3.1x translate to real returns of 5.3% to 6.0% How to calculate the IRR of a guaranteed return plan You need only the benefit illustration, which every insurer must give before sale, and a spreadsheet. Lay out a timeline. Year 0 is your first premium. Continue until the last payout. Premiums as negative numbers. Usually paid at the start of each policy year. Benefits as positive numbers. Income, survival benefits, maturity, return of premium, each in the year it is paid. Net the same-year flows. If you pay a premium and receive income in the same year, enter the difference. Run =IRR() on the column. For exact dates, use =XIRR(values, dates). Use only the guaranteed column. For participating plans, the illustration shows two scenarios, at 4% and 8% assumed investment returns. Bonuses are not guaranteed, so compute both and treat the 4% case as the conservative one. Our calculators on the tools page (/tools) help with the comparison figures. Five steps to calculate the IRR of a guaranteed return or endowment plan in Excel Three worked examples: what is the real IRR? These are illustrative structures typical of the market, not specific products. All benefits are assumed tax-free (total premium within ₹5 lakh a year). Plan type You pay You receive Headline multiple Real IRR Guaranteed lump-sum (non-par) ₹1 lakh a year for 10 years (₹10 lakh) ₹17.5 lakh at end of year 15 1.75x 5.36% Guaranteed income (non-par) ₹1 lakh a year for 12 years (₹12 lakh) ₹1 lakh a year for 25 years from year 14, plus ₹12 lakh at the end (₹37 lakh) 3.08x 5.28% Endowment (participating) ₹50,000 a year for 20 years (₹10 lakh), cover ₹10 lakh ₹10 lakh + bonus ₹40 per ₹1,000 a year (₹8 lakh) + terminal bonus ₹1.5 lakh = ₹19.5 lakh 1.95x 6.00% How sensitive is the answer? Small changes move the IRR less than the headline suggests. In the lump-sum plan, a maturity of ₹17 lakh gives 5.08% and ₹18 lakh gives 5.63%. In the endowment, a bonus of ₹35 per ₹1,000 drops the IRR to 5.55%, while ₹45 lifts it to 6.43%. Ask the insurer for its actual bonus history, not the 8% illustration. What about the life cover? Part of your premium pays for life cover, usually around ten times the annual premium in these plans. That cover has value, but it is small. Term cover of the same size costs a fraction of the premium, and most families need far more. If you need protection, see how much term cover you need (/insights/term-insurance-advisor-pune) first. Guaranteed return plan vs PPF vs FD: which earns more? To compare fairly, we put the lump-sum plan's cash flows (₹1 lakh a year for 10 years, measured at year 15) through PPF and a bank FD: Option Return assumed Value at year 15 Tax Liquidity PPF 7.1% (rate as of Oct-Dec 2026; revised quarterly) ₹20.95 lakh Tax-free Partial withdrawals from year 7 Bank FD, 30% slab 6.4% pre-tax, about 4.4% after tax ₹15.84 lakh after tax Interest taxed yearly Premature exit with small penalty Bank FD, no tax 6.4% ₹19.49 lakh Below taxable limit As above Guaranteed lump-sum plan 5.36% IRR, locked ₹17.5 lakh Tax-free if premiums ≤ ₹5 lakh a year Surrender at a loss in early years PPF wins whenever you can use it, but its ₹1.5 lakh yearly limit binds many families, and its rate is not locked. For someone in the 30% slab, the guaranteed plan beats a taxable FD by about ₹1.7 lakh here, and it locks the rate for 15 years. For a retiree with little tax, the FD wins and stays liquid. Our article on FD vs debt funds after tax (/insights/fixed-deposit-vs-debt-mutual-funds-which-gives-better-post-tax-returns-now) covers the market-linked alternative. Guaranteed return plan IRR compared with PPF at 7.1% and FD at 6.4% pre-tax and 4.4% post-tax Does the October 2026 rate hike change this? Partly. RBI raised the repo rate to 5.50% on 7 October 2026, and the 10-year government bond yield is around 7.25%. Insurers price guaranteed plans off bond yields, so newer quotes may improve. Whatever the quote, compare its IRR with the 10-year G-sec yield and with PPF. A guaranteed plan paying well below both is giving most of the spread to the insurer and distributor. Our note on the October 2026 repo hike (/insights/rbi-repo-rate-hike-october-2026-emi-fd-debt-funds) covers the wider rate picture. How is the maturity taxed? The ₹5 lakh premium rule Under the Income-tax Act 2025, the exemption for life insurance proceeds sits in Schedule II, serial number 2 (formerly section 10(10D)). For non-ULIP policies issued on or after 1 April 2023, maturity proceeds are tax-free only if your total premium across such policies is ₹5,00,000 or less in any year of their terms. The usual condition also applies: the annual premium must not exceed 10% of the sum assured for most policies. Above ₹5 lakh, the gain is taxed as income from other sources at your slab rate. Under the rule CBDT notified in August 2023 (Rule 11UACA of the old rules), the taxable amount is the sum received minus premiums paid, excluding any premiums already claimed as a deduction. Term plan premiums do not count towards the ₹5 lakh, and a death claim stays tax-free. The effect is large. Scale our lump-sum plan to ₹6 lakh a year: maturity ₹1.05 crore on ₹60 lakh of premiums. Tax on the ₹45 lakh gain at 31.2% is about ₹14 lakh, and the IRR falls from 5.36% to 3.98%. That is below a post-tax FD and well below PPF. Several policies? The exemption applies to the combination of policies whose total premium stays within ₹5 lakh; CBDT's illustrations let you pick the combination with the higher receipt. Older policies: those issued before 1 April 2023 are unaffected by the ₹5 lakh limit. ULIPs: follow a separate ₹2.5 lakh limit, covered in our ULIP vs term plus mutual fund (/insights/ulip-vs-term-plus-mutual-fund) comparison. Deduction: premiums qualify under section 123 (old 80C) only in the old tax regime, within ₹1.5 lakh. When does a guaranteed return plan make sense? We would not dismiss these plans. They do one thing well: lock a known, tax-free rate for decades, with no reinvestment risk. That suits a narrow set of people. When a guaranteed return or endowment plan makes sense and when it does not Locking a rate: when you expect rates to fall over the next decade, a guaranteed 15-30 year return protects you. FDs reset every few years. Fixed goals with no risk appetite: a child's college fee 12 years away, if you will not hold equity. Retirement income: an income plan can create a guaranteed stream to sit alongside pension and SWP (/insights/swp-systematic-withdrawal-plan-guide) income. Compare it with annuities (/insights/insurer-annuity-vs-nps-annuity) . They do not suit young earners with long horizons, who can take equity risk through SIPs (/insights/sip-planning-guide-india) , or anyone unsure of paying every premium. Early surrender is costly, as explained in our guide on surrendering an old policy (/insights/surrender-old-traditional-life-policy) . Five questions to ask before you sign What is the IRR of the guaranteed benefits alone, and on which year's cash flows? What would I get back if I surrender in years 2, 5 and 10? Is the payout guaranteed in the contract, or only illustrated at 4% and 8%? Does my total premium, across all policies issued since April 2023, exceed ₹5 lakh a year? Do I have enough term cover already, apart from this plan? If an agent cannot answer the first question, compute it yourself. Our list of mis-selling red flags (/insights/mis-selling-red-flags-insurance-investments) covers other warning signs, and you can compare options on our insurance page (/products/insurance) . Related reading ULIP vs term plan plus mutual fund (/insights/ulip-vs-term-plus-mutual-fund) Should you surrender an old traditional policy? (/insights/surrender-old-traditional-life-policy) PPF: complete guide to returns and withdrawals (/insights/ppf-complete-guide) FD calculator: cumulative vs payout and TDS (/insights/fd-calculator-cumulative-vs-payout-tds) Insurance planning in India (/insights/insurance-planning-guide-india) Frequently Asked Questions What is a good IRR for a guaranteed return plan? Compare it with what you could get elsewhere at the same risk. As of October 2026, PPF pays 7.1% tax-free and the 10-year government bond yields around 7.25%. A guaranteed plan returning 5-6% is reasonable only if you value the locked rate and life cover. If the IRR is below 5%, or below your post-tax FD rate, the plan rarely justifies its illiquidity. How do I calculate the IRR of an endowment plan? Take the benefit illustration. In a spreadsheet, enter each year's premium as a negative number and each year's payout (survival benefit, maturity, bonuses) as a positive number. Apply =IRR() to the column. For participating plans, calculate it twice, using the 4% and 8% scenarios, because bonuses are not guaranteed. Our 20-year example gives 6.0% with a ₹40 bonus. Is the maturity amount of a guaranteed plan tax-free? Yes, if the policy meets Schedule II of the Income-tax Act 2025: annual premium within 10% of the sum assured and, for policies issued from 1 April 2023, total yearly premium across such policies of ₹5 lakh or less. Above ₹5 lakh, maturity minus premiums paid is taxed at your slab rate. Death benefits are always tax-free. Is a guaranteed return plan better than PPF? Usually not. PPF pays 7.1% tax-free as of October-December 2026, above the 5-6% typical of guaranteed plans, and allows partial withdrawals. But PPF is capped at ₹1.5 lakh a year and its rate can be cut each quarter. A guaranteed plan can make sense for money beyond the PPF limit when you want a rate locked for 15-30 years. Are guaranteed returns really guaranteed? The guaranteed benefits written into the policy contract are a legal obligation of the insurer, which IRDAI regulates for solvency. Bonuses in participating plans and anything shown only at the 4% or 8% illustrated rates are not guaranteed. The guarantee also assumes you pay every premium; stop early and you receive the surrender value instead, which can be much lower. Why do the 4% and 8% figures appear in illustrations? IRDAI requires insurers to show benefits at two assumed gross investment returns, 4% and 8% a year, for participating and unit-linked policies. They are not forecasts or promises. For a cautious estimate, use the 4% scenario when computing the IRR and treat anything above as a possible bonus. Sources: Income Tax Department: Schedule II, Income-tax Act 2025 (https://www.incometaxindia.gov.in/w/schedule-ii-9) ; Grant Thornton: CBDT rule on taxing life insurance proceeds (Aug 2023) (https://www.grantthornton.in/globalassets/1.-member-firms/india/assets/pdfs/alerts/gt_tax_alert_cbdt_introduces_rule_for_computing_taxable_income_from_ce.pdf) ; IRDAI policyholder portal: circulars (https://policyholder.gov.in/web/guest/circulars) ; Business Standard: surrender values and traditional plan returns (https://www.business-standard.com/finance/personal-finance/early-in-the-tenure-of-non-linked-policy-you-don-t-like-surrender-it-124041100852_1.html) . Worked examples are Money n Wealth calculations. Want the real IRR of a plan you have been offered? Send us the benefit illustration and we will compute it against PPF, FDs and bonds. Talk to Money n Wealth (/contact) for an insurance review. This article is for general educational purposes only and does not constitute financial advice. Figures and examples are illustrative. Please consult a qualified financial adviser for guidance specific to your situation. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered Mutual Fund Distributor (ARN-121995) and APMI-registered PMS Distributor (APRN07444); it is not a SEBI-registered investment adviser and may earn distribution commission on investments made through it. Insurance is the subject matter of solicitation.
Frequently Asked Questions
What is a good IRR for a guaranteed return plan?
Compare it with what you could get elsewhere at the same risk. As of October 2026, PPF pays 7.1% tax-free and the 10-year government bond yields around 7.25%. A guaranteed plan returning 5-6% is reasonable only if you value the locked rate and life cover. If the IRR is below 5%, or below your post-tax FD rate, the plan rarely justifies its illiquidity.
How do I calculate the IRR of an endowment plan?
Take the benefit illustration. In a spreadsheet, enter each year's premium as a negative number and each year's payout (survival benefit, maturity, bonuses) as a positive number. Apply =IRR() to the column. For participating plans, calculate it twice, using the 4% and 8% scenarios, because bonuses are not guaranteed. Our 20-year example gives 6.0% with a ₹40 bonus.
Is the maturity amount of a guaranteed plan tax-free?
Yes, if the policy meets Schedule II of the Income-tax Act 2025: annual premium within 10% of the sum assured and, for policies issued from 1 April 2023, total yearly premium across such policies of ₹5 lakh or less. Above ₹5 lakh, maturity minus premiums paid is taxed at your slab rate. Death benefits are always tax-free.
Is a guaranteed return plan better than PPF?
Usually not. PPF pays 7.1% tax-free as of October-December 2026, above the 5-6% typical of guaranteed plans, and allows partial withdrawals. But PPF is capped at ₹1.5 lakh a year and its rate can be cut each quarter. A guaranteed plan can make sense for money beyond the PPF limit when you want a rate locked for 15-30 years.
Are guaranteed returns really guaranteed?
The guaranteed benefits written into the policy contract are a legal obligation of the insurer, which IRDAI regulates for solvency. Bonuses in participating plans and anything shown only at the 4% or 8% illustrated rates are not guaranteed. The guarantee also assumes you pay every premium; stop early and you receive the surrender value instead, which can be much lower.
Why do the 4% and 8% figures appear in illustrations?
IRDAI requires insurers to show benefits at two assumed gross investment returns, 4% and 8% a year, for participating and unit-linked policies. They are not forecasts or promises. For a cautious estimate, use the 4% scenario when computing the IRR and treat anything above as a possible bonus.
Want the real IRR of a plan you have been offered?
Send us the benefit illustration and we will compute it against PPF, FDs and bonds. Talk to Money n Wealth for an insurance review.