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Highest NAV ULIP plans: What you should know

Of late, a lot of ULIP products have been offered with Highest NAV guarantee. ICICI Pinnacle, TATA AIG Invest assure apex, LIC wealth plus and SBI life smart ULIP fall in this category. Are all these plans really that good to invest in. Let us take a look at these plans.

For information about SBI life smart ULIP, read earlier article.

All of there plans have higher allocation charges in the first year. Some also have a charge for guaranteeing the highest NAV.

ICICI Pinnacle:

  1. Premium allocation charges of 14% for first year, 4% for second year and 2% in the third year.
  2. Policy administration charges for 0.6% per month (about 7.2% per year), applicable only during the first 3 years, is quite high.
  3. Fund management charges of 1.35% plus investment guarantee charges of 0.1% per year.
  4. For other terms and conditions and finer details read http://www.iciciprulife.com/public/Brochures/Pinnacle_Brochure_21oct09.pdf.

TATA AIG Invest assure apex:

  1. Premium allocation charges of 14% for first year, 4% for the second and third year.
  2. Policy administration charges of 0.5% per month (about 6% per year) for first 3 year. After that 0.06% per month.
  3. Fund management charges of 1.2% plus investment guarantee charges of 0.1% per year.
  4. For other terms and conditions and finer details read http://www.tata-aig-life.com/Includes/TECH%20BRO_IA%20APEX%20PLUS.pdf.

LIC wealth plus:

  1. Premium allocation charges of 12% for first year and 2.5% from second year onwards.
  2. Policy administration charges of Rs. 60 per month. Is less as compared to other such plans.
  3. Fund management charges of 1.0% plus investment guarantee charges of 0.35% per year.
  4. For other terms and condition and finer details read http://www.licindia.in/wealth_plus_benefits.html.

It is also important to note that these plans guarantee the highest nav only if the policy is held till maturity. If surrendered earlier the highest NAV guarantee does not apply.

Meta: March 29th, 2010 by Ripul Gupta
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ULIP! What your insurance agent wont tell you.

Please refer the product brochure before concluding the sale.

You would have heard this many times in advertisements, but how many of us while investing in ULIP, do read the product brochure. Government has made it compulsory for the insurance companies to issue this statement. I think the government should find a way to force the investors to actually read the product brochure.

While dealing with an insurance agent, you need to understand this. Insurance agent is like any other sales man. He is there to make a sale. And like any other salesman, he will try to make the sale with hook or crook. I am not trying to say he will be lying through his teeth to make the sale. But most of the facts would be twisted enough to give a wrong impression about the product.

You must have heard all this from your insurance agent.

  • You just need to pay for the first three year.
  • This product gives 275% guaranteed return.
  • This product comes with a jump start bonus.
  • After three years if you want you can withdraw the investment.
  • He will also show you a illustration indicating  the fund value with 6% and 10% return.

Although all these statements might be true. But each statement will come with a * (Conditions apply).

  • In most of the schemes if you stop paying the premium after the first three years, you wont be eligible for the bonuses and guaranteed returns.
  • The 275% return is over a span of 30 years. That is less than 5% per annum return, which is just equal to the post tax return of a fixed deposit. You are eligible for this guaranteed return only on maturity if all the premiums are paid.
  • Jump start bonus is available if all the premium are paid and the plan is held till maturity.
  • If you withdraw the money after three years, you don’t get the fund value. You will have to pay some withdrawal charges. The illustration provided to you showed the fund value and not the surrender value.
  • The illustration is just for reference. The actual rate of return will be different.

When your insurance agent comes to you to sell a insurance product, ask him to give you the product brochure. If you are proactive enough ask the agent to tell you the name of the insurance product. Product brochure are download-able on the insurance companies website. Go read it. Check all the conditions that apply and then make a informed decision.

Meta: February 23rd, 2010 by Ripul Gupta
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Kotak Smart Advantage Plan

Kotak Smart Advantage plan is a ULIP plan from Kotak Life Insurance. This plan comes with up to 100%* premium allocation. It is important to notice the star (*). The 100% premium allocation is only from second year that too when the annual premium is over INR 36,000. Point to be noticed is that the first year’s premium does not get allocated towards the fund. This plan claims to give up to 275% assured return on the first year’s premium. This plan comes with a premium payment term (PPT) of 3 to 30 years.

Let us first answer a few questions that would help us in understanding the policy better

  1. What do you mean by guaranteed 275% return on first year’s premium?
    First year’s premium that you pay for the policy does not get allocated to your fund, but will contribute towards fixed return at maturity. This fixed return could be from 100% (for PPT of less than 10 years) up to 275% (for PPT of 30 years). To get this fixed return it is necessary that you have paid all the due premiums. If all the premium are not paid the fixed return is reduced proportionally.
  2. Is this fixed return good?
    In case you had put this money in fixed deposit earning a post tax interest of 5%, your money would have given a return of over 400% over 30 years where as this plan is giving only 275%.
  3. Does the plan really give 100% premium allocation?
    Technically it does. But as seen in the above two questions this in not entirely true. As the first year premium is not allocated to the fund and gives return far below the average interest rate, considering a 5% post tax interest rate you can assume about 40% of your first year premium is lost. Also from second year 100% allocation is done only if your yearly premium is above INR 36,000.
  4. Are there any other charges?
    Like any other ULIP, the following charges are also applicable:

    • Fund Management charges: Between 1.2 to 2.0% of the fund value depending on the type of fund.
    • Administrative charges: Rs. 65 per month (Rs. 780 per year). Can increase by 5% every year.
    • Mortality charges: Comparable to other plans. Get periodically subtracted from the fund value.
    • Surrender charges: Applicable only if policy gets surrendered with in first eight years.
  5. Can partial withdrawal be done?
    Partial withdrawal can be made anytime after the third year. Charges of partial withdrawal is same as policy surrender. If more than 10% of the fund value is withdrawn it affects your fixed return at maturity.
  6. What are the Settlement options?
    Upon maturity or mortality, the plan gives the option of  lump sum settlement or Equal installment over a period of up to 5 years. This feature becomes important if your policy maturing coincides with fall in stock market. In such a case, you might not want the fund value to be withdrawn. You can opt for equal installment giving your fund to increase in value before settlement.
  7. What additional benefits are available?
    Loyalty bonuses, although small, are provided every five years after the tenth year.

Verdict

  1. The plan claims to give fixed return, which is small as compared to a fixed deposit even for a PPT of 30 years. It is even worse for shorter PPT.
  2. This plan also claims to give 100% premium allocation but does so only from the second year
  3. Gives loyalty bonus every five years starting from the tenth year.
  4. Has option of top-ups. Allows you to invest some extra amount in your policy if you feel it appropriate.
  5. Gives option of investing in three different funds: Aggressive, Cautious and Conservative funds.

Overall the plan is worth investing only if you are ready to give a long term commitment as shorter PPTs will reduce your fixed return of the first year’s investment. If you are one of those who like to time the market by investing extra in top-ups and delaying settlement, this can be a good plan for you. Please read the offer document carefully before investing.

Meta: June 23rd, 2009 by Ripul Gupta
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ICICI Prudential InvestShield Life New

ICICI Prudential InvestShield Life new is a premium guarantee plan.

What does it mean by premium guarantee?
In ULIP plans a part of the premium is invested in either equity or debt market or both. This part of the premium along with the return it generates is called the fund value. Mortality charges and policy administration charges are deducted from the fund value on a regular interval. In case of a premium guarantee plan the insurance company promises to pay back the premium paid, on death or at the time of maturity, even if the fund value of your policy is less than the total premium paid.

What are the exceptions to premium guarantee?
If you decide to surrender the policy before maturity then the premium guarantee will not apply and only the fund value after deducting the surrender charges will be paid. Premium guarantee is also lost, if you decide to discontinue paying the premium after the first three years. To summarize, the premium guarantee applies only on maturity or on death, and only if all the due premiums have been paid.

How much insurance can I get?
Sum assured for this plan depends on the annual premium and term of the plan. Sum assured = Annual Premium * Term / 2. For a plan with term of 10 years the sum assured is 5 times the annual premium and for 30 years term is it 15 times the annual premium.

What are the death benefits?
Death benefit for the plan is sum assured plus fund value or premium guarantee which ever is more. That is, in an event of death the nominee will receive greater of sum assured plus the fund value or premium guarantee.

What are the fund options available?
Your money gets invested in New InvestShield Balanced Fund. There is no other fund option. New InvestShield Balance Fund has a mandate to invest upto 40% in equity market. The fund has been in existence for about three years and as of 2nd June, 2009, it has given average 10% per year return. Present NAV for InvestShield Balanced Fund can be found here.

How does the return of this policy is different as compared to Fixed Deposit?
Instead of putting the money in this policy, lets assume that you had put the premium equivalent money, every year in FDs and the FDs were fetching a interest rate of 10%. In this case, your post tax return from FD would be about 6.5-7%. This return will be the same as that of this policy if the policy fund continues to perform the way it is performing right now.

What are the charges in this scheme?
Premium allocation charges in the policy are 35% for the first year, 15% for the second year and 3% from there on. These charges are high as compared to other schemes available. Policy administration charges are Rs 40 per month which comes to around 480 per year. Fund management charges are 1.25% per year. Surrender charges for this scheme are also high as much is 50% if the policy is surrendered in the fourth year.
Verdict

  1. Premium allocation charges are quite high. Also these charges are application through out the life of the policy.
  2. Premium guarantee makes sure that the money you have invested in this scheme is not lost as long as you are loyal to the scheme. But personally I think that if you keep invested in a ULIP for the full term, your fund value should never go below the amount you have invested in it.
  3. Flexibility of deciding the sum assured is not available. This is a negative point.
  4. Option of switching between types of fund is not available.
  5. Return given by the scheme so far is good. The scheme needs to give such return consistently to make itself worthwhile for the investor.

Overall the scheme does not look bad. It is suited to those investors who want to get tax free returns with a small risk of not getting any return. Go for this scheme if you do not see any liquidity requirement till the policy matures to make use of the premium guarantee. Otherwise there are other scheme that give you more options with less charges.

More information about the policy can be found here.

Meta: June 3rd, 2009 by Ripul Gupta
Tags:   · · · · 5 Comments