16 FEB. 2017
New Ulip: should you invest in it?
The latest unit linked insurance plan (Ulip) by Edelweiss Tokio Life Insurance Co. Ltd, called Wealth Ultima, offers various investment strategies. A Ulip offers insurance and also invests your money in the markets. “So whether you want to invest in funds on your own or want assisted investment strategies, this plan offers you the choice,” said Deepak Mittal, managing director and chief executive officer, Edelweiss Tokio Life Insurance. Here’s a look at the plan’s important features.
What do you get?
This is a type-1 Ulip: on death of the policyholder during the policy term, the insurer pays higher of the fund value or the insurance cover. But if you plan to buy this policy for your child, it comes with an inbuilt waiver-of-premium benefit. If you choose the Little Champ option, the child is the life insured whereas you, the parent, are the policyholder. On death of the policyholder, the insurer invests the present value of all the remaining premiums at one go on behalf of the deceased policyholder, so that the maturity benefits accrue as planned. The insurance cover on the life insured (the child) continues, but if the life insured dies during the policy term, the death benefit is paid and the plan terminates. In child-plan Ulips, typically the parent is the insured. If the parent dies during policy term, the death benefit is paid immediately, and subsequently the premium waiver benefit kicks in.
The sum assured under this policy is higher of 10 times the annual premium, or half the policy term multiplied by the annual premium, if you are less than 45 years of age. So, on death, your beneficiary gets higher of: the sum assured, or 105% of all the premiums paid so far, or the fund value.
There are five funds to choose from (three are equity funds). You can also choose from two investment strategies. The life cycle and duration based systematic transfer plan starts with an equity-heavy asset allocation, which tapers as maturity nears. The profit target-based systematic transfer plan transfers gains from the equity fund to the bond fund.
On maturity, you can take the fund value as a lump sum or stagger it up to 5 years. It also offers the option of a whole life plan, in which you can take this policy till 100 years of age. But to calculate the sum assured, the policy term is taken as 70 minus the age at entry. You can also opt for systematic partial withdrawal after completing the first 10 policy years. The maximum withdrawal is 12% of the fund value per annum. Like others, this Ulip too comes with loyalty additions.
How does it work?
The premium gets invested in the funds of your choice, and policy charges, including the cost of insurance, are met from the fund value. The premium allocation charge is deducted from the premium. It is 6% in the first year, 4% from the second till the fifth year, and nil thereafter. Fund management charge is 1.35% (1.25% for bond fund). Mortality charge will depend on factors such as your age. Policy administration charge is for the first 5 years and 1.65% of the annual premium.
Say, a 35-year-old buys this plan for a policy term of 20 years and for an annual premium of Rs1 lakh. Assuming growth of 8%, the fund value at the end of 20 years will come to about Rs43.50 lakh. This is a net return of 6.93%.
Should you buy?
Suresh Sadagopan, a Mumbai-based financial planner, said this plans offers choice. “The plan is structured to include investment strategies like systematic investment plans, systematic transfer plans and also systematic withdrawal, which is good for customers who don’t need any advice and would like to invest on their own,” he said. But he added that a high level of flexibility was not possible in a bundled plan like Ulip.
This is one of the cheapest Ulips as the loyalty additions help reduce the overall impact of charges. Speaking from a cost point of view, Ulips have improved a lot but you need to keep in mind they are front loaded bundled products, so portability is a challenge. Understand the plan properly before deciding.
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