What is it?
It is a unit-linked insurance plan (Ulip) available for a fixed term of 10 years. In this plan, you need to pay the premiums only for the first five years.
What do you get?
You have two death benefit options to choose from: the first gives your beneficiary the higher of the sum assured and the fund value upon your death; the second gives both the fund value and the sum assured upon your death. The second option also has an in-built accidental death cover, where the sum assured doubles in case of death due to an accident. However, there is a charge for this in-built cover. The sum assured is fixed at 10 times the annual premium if you are between 18-44 years of age and seven times the annual premium if you are above 45 years of age.
On maturity you get back the fund value. The policy also gives you a settlement option, where you can keep your corpus invested up to five years after maturity. You can withdraw a part of the corpus periodically or you can withdraw in lump sum. During this period, life cover is not available.
This policy has zero allocation charges. Policy allocation charge is the charge that gets deducted straight from the premium before any money is invested or buys you an insurance cover. Here the entire premium gets invested.
The policy administration charge is 0.5% of the annual premium and is capped at Rs 6,000 per annum. Because of this cap the effect of policy administration charge minimizes if you choose a higher premium.
Other charges in the policy drag the returns down. Let’s take an example of a 35-year-old paying an annual premium of Rs 10 lakh. The sum assured in this case will be Rs 1 crore. Assuming he chooses an equity fund and the fund grows at an assumed rate of 10%, under the death benefit option one, the policyholder will get a maturity corpus of Rs 92.98 lakh. This is a return of 7.98%. In the second option, the policyholder will get Rs 89.02 lakh or a return of 7.41%. But if you take a lower premium of say Rs 50,000 per annum, even the first option will generate a return of just 6.32%.
Mint money take
Since we recommend type II Ulips that offer both the fund value and the sum assured on death, we took the second option of this plan and compared it with a term plus mutual fund combination. Assuming the mutual fund charges a fund management charge of 2% per annum, the investor is better off buying a term plan. This example, however, doesn’t take into consideration the double sum assured benefit on account of accidental death.