ULIPs have earned such a lot of bad press that agents are selling policies with a tag line, yeh ULIP nahi hai! (Which leads to another kind of mis-selling) But seriously, have you evaluated the costs in a ULIP and compared it with costs in an endowment policy or a mutual fund?
Here’s some breaking news. The 7.5% premium allocation charge in a ULIP is less than the 2.5% expense ratio in a mutual fund.
This happens simply because while the 7.5% charge is calculated on
the amount you pay annually in a ULIP, the 2.5% charge is on the asset
under management (AUM) in a mutual fund.
Let us take the example of LIC’s new ULIP plan called Flexi Plus and a
mutual fund scheme. You pay Rs 25000 every year in LIC’s ULIP as well
as a Mutual Fund scheme and continue this for 20 years. Let us assume
that the amount grows by 10% every year.
In the LIC’s Flexi Plus ULIP, the premium allocation charge is 7.5%
for the 1st year, 5% for the next 4 years and 3% thereafter. The total
premium allocation charge adds upto Rs 18125 in 20 years. The policy
administration charge is around 500 every year and adds up to Rs 10000
in 20 years. The fund management charge is @ 0.60% which adds up to Rs
70000 approx. in 20 years. The total charges add up to Rs 1 lakh.
In a mutual fund scheme with 2.5% expense ratio, the charge is
calculated on the total AUM and not just the amount you pay. In the
above example, the total expenses charged in 20 years would be Rs 2.36
lakh approx ( at just 2% of AUM).
The 2.5% expense ratio in a mutual fund is double the expenses in LIC’s ULIP, Flexi Plus.
LIC’s Flexi Plus is a unit linked assurance plan, which provides a lump
sum benefit on death but also the maturity benefit irrespective of the
survival of the Policyholder. This plan is designed to provide a very
good combination of protection and long term savings.
Here are some more features of LIC’s Flexi Plus:
Benefits under this plan are:
- Flexibility to choose the policy term
- Flexibility to choose the premium paying mode as per your convenience
- Flexibility to choose from 2 fund types to suit your investment needs
- Flexibility of partial withdrawals to meet your emergency needs
- Payment of Premiums: You may pay premiums regularly at yearly,
half-yearly, quarterly or monthly (through ECS mode only) intervals over
the term of the policy.
A grace period of 30 days will be allowed for payment of yearly or
half-yearly or quarterly premiums and 15 days for monthly (ECS)
premiums.
Eligibility Conditions and Other Restrictions:
(a) Minimum Age at entry - 18 years (last birthday)
(b) Maximum Age at entry - 50 years (nearest birthday)
(c) Maximum Maturity Age - 60 years (nearest birthday)
(e) Policy Term - 10 to 20 years
(f) Premium Amount -
|
Mode |
Minimum (Rs.) |
Maximum (Rs.) |
|
Yearly |
15,000 |
100,000 |
|
Half-Yearly |
10,000 |
50,000 |
|
Quarterly |
5,000 |
25,000 |
|
Monthly (ECS) |
2,000 |
8,000 |
(10 * annualized premium) or (105% of the total premiums paid including any premiums which have fallen due but not paid), whichever is higher
Investment of Funds:
|
Fund Type |
Investment in Government / Government Guaranteed Securities / Corporate Debt |
Short-term investments such as money market instruments |
Investment in Listed Equity Shares |
Details and objective of the fund for risk /return |
|
Debt Fund Mixed Fund |
Not less than 60% Not less than 45% |
Not more than 40% Not more than 40% |
Nil Not less than 15% & Not more than 25% |
Low risk Steady Income –Lower to Medium risk |
Method of Calculation of Unit price: Units will be allotted based on the Net Asset Value (NAV) of the respective fund as on the date of allotment. There is no Bid-Offer spread (the Bid price and Offer price of units will both be equal to the NAV). The NAV will be computed on daily basis and will be based on investment performance and Fund Management Charge of each type of fund and shall be computed as:
The timing (presently 3 p.m.) is as per the existing guidelines and changes in this regard shall be as per the instructions from IRDA.
Charges under the Plan:
A) Premium Allocation Charge: This is the percentage of the premium deducted towards charges from the premium received. The balance constitutes that part of the premium which is utilized to purchase (Investment) units for the policy. The allocation charges are as below:
|
Premium |
Allocation Charge |
|
1st Year |
7.50% |
|
2nd to 5th Year |
5.00% |
|
Thereafter |
3.00% |
This is the cost of life cover, which includes payment of Sum Assured and all future premiums payable under the plan. This charge shall depend upon the Sum at Risk i.e. sum of Sum Assured and total amount of all future premiums payable under the policy as on the date of deduction of mortality charge.
Mortality charge, which is age specific, will be taken every month by canceling appropriate number of units out of the Policyholder’s Fund value. This charge will be deducted till the Life Assured is alive.
The rate of mortality charge per annum per Rs. 1000/- Sum at Risk for some of the ages in respect of a healthy life are as under:
|
Age |
25 |
35 |
45 |
50 |
|
Rs. |
1.36 |
1.66 |
3.73 |
6.29 |
- Policy Administration charge – This charge shall be deducted on monthly basis by cancelling appropriate number of units out of the Policyholder’s Fund Value.
Policy Year Policy Admin Charge (per month)
1st Year Rs. 50
2nd Year Rs. 41.20
3rd Year Rs. 42.44
4th Year Rs. 43.71
5th Year Rs. 45.02
6th Year & Thereafter Rs. 34.78 in 6th year escalating at 3% p.a. thereafter
- Fund Management Charge – This is a charge levied as a percentage of the value of assets at following rates:
0.60% p.a. of Unit Fund for “Mixed” Fund
Fund Management Charge shall be appropriated while computing NAV.
No Fund Management Charge shall be deducted on Discontinued Policy Fund.
- Switching Charge – This is a charge levied on switching of monies from one fund to another. Within a given policy year 4 switches will be allowed free of charge. Subsequent switches in that year shall be subject to a switching charge of Rs. 100 per switch. This charge will be recovered by canceling appropriate number of units out of the Policyholder’s Fund Value.
- Bid/Offer Spread – Nil.
- Discontinuance Charge – The discontinuance charge for regular premium policies is as under:
|
Where the policy is discontinued during the policy year |
Discontinuance charges for the policies having annualized premium up to Rs. 25,000/- |
Discontinuance charges for the policies having annualized premium above Rs. 25,000/- |
|
1 |
Lower of 15% * (AP or FV) subject to a maximum of Rs. 2500/- |
Lower of 6% * (AP or FV) subject to maximum of Rs. 6000/- |
|
2 |
Lower of 7.5% * (AP or FV) subject to a maximum of Rs. 1750/- |
Lower of 4% * (AP or FV) subject to maximum of Rs. 4000/- |
|
3 |
Lower of 5% * (AP or FV) subject to a maximum of Rs. 1250/- |
Lower of 3% * (AP or FV) subject to maximum of Rs. 3000/- |
|
4 |
Lower of 3% * (AP or FV) subject to a maximum of Rs. 750/- |
Lower of 2% * (AP or FV) subject to maximum of Rs. 2000/- |
|
5 and onwards |
NIL |
NIL |
FV – Policyholder’s Fund Value on the date of discontinuance
- Service Tax Charge – A service tax charge, if any, will be as per the service tax laws and rate of service tax as applicable from time to time.
- Miscellaneous Charge – This is a charge levied for an alteration within the contract, such as change in premium mode to higher frequency, and shall be a flat amount of Rs. 50/- which will be deducted by canceling appropriate number of units out of the Policyholder’s Fund and the deduction shall be made on the date of alteration in the policy.
(Source:http://rupeemanager.com/investing/insurance/ulips/lics-flexi-plus-ulip-costs-are-less-than-a-mutual-fund.html)
No comments:
Post a Comment