What is it?
It is a single-premium unit-linked insurance plan (Ulip) that promises a maturity corpus of at least twice the premium paid. It also provides an insurance cover during the term.
What do you get?
The minimum premium under this plan is Rs5,000, which is also the cost of one guaranteed maturity certificate. Under the plan, you make investments by buying these certificates. You can buy any number of guaranteed maturity certificates at inception. These certificates invest your money in the guaranteed bond fund, which is mainly a debt fund with no exposure to equities. On maturity, you will get the higher of the fund value or twice the money invested through the certificates.
The sum assured or the death benefit under this policy is fixed at five times the single premium or total amount invested in the first year. From the second year, it comes down to 1.25 times the amount invested for individuals below 45 years of age and 1.10 times for individuals above 45 years of age. Since it is a type I Ulip, on death your beneficiary will get the higher of the sum assured or the fund value. On death, the guarantee of returns does not hold good.
Since it is a single-premium plan, you can surrender it only after five years. On surrender, you will get the fund value but will not honour its promise of a guarantee. The policy also allows partial withdrawals by redeeming the certificates. In this case, the guarantee will be applicable only on the certificates not redeemed.
How good is it?
The insurance element in the policy is minimal, so it is not for those looking for an insurance product. Whether the policy is good as an investment can be assessed by looking at the guaranteed benefits and the charges.
The plan offers to double your money at the end of the policy term. Considering the term is fixed at 10 years, the guaranteed return on your money will be around 7%.
The charges in the policy will determine the impact of cost on the final yields of the policy. The premium allocation charge, which is a straight deduction from the premium, is nil. The policy administration charge is 1.85% of the single premium in the first five years, after which it reduces to 0.70%, However, this charge can’t exceed Rs6,000 per annum.The fund management charge is 1% of the fund value per annum. Assuming the fund grows at 6% and 10%, Rs 1 lakh invested by a 35-year-old will yield effective rates of 3.39% and 7.48%, respectively. In other words, the cost is about 2.5-2.6 percentage points.
Mint money take
The minimum or the guaranteed return under the policy is around 7%. If you are in the lower tax bracket of 10% and 20%, you would be better off by investing in fixed deposits considering that FDs of five years and above are giving around10% currently.