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A low-cost Ulip that can only be bought online

With the re-introduction of LTCG tax on equity investments, insurers are trying to present Ulips as attractive investment avenues by lowering their charges. We review one such product here

Unit-linked insurance plans (Ulips) are again gaining traction and insurers are trying to get your attention by reducing costs. Max Life Insurance Co. Ltd also launched a Ulip called Max Life Online Savings Plan. As its name suggests, it is available online. Max Life has waived some of the charges. Here are some details.

It comes in two variants: a Type-1 Ulip that pays higher of the insurance cover or the fund value on death of the policyholder during the policy term; on maturity policyholder gets the fund value. 

The Type-2 plan works like a child plan. On death of policyholder, the nominee (child) gets the insurance cover; future premiums are waived off and on maturity the nominee gets the fund value. Regulations mandate a minimum payment of 105% of all the premiums paid on death for both the variants. 

In the Type-1 plan, depending on your age, you can choose a sum assured ranging from 10 times to 20 times the annual premium. The younger you are, higher is the sum assured available.

In the Type-2 plan, sum assured is fixed at 10 times the annual premium. On death of the policyholder, nominee will also get guaranteed monthly payouts that are 1% of the sum assured. This will be for a minimum of 3 years and maximum of 10 years. For instance, if the policy term is 15 years and death occurs in 3rd year, insurer will pay for 10 years (not 12). But if death occurs in 14th year, insurer will pay for at least 3 years (not just 1 year): monthly income for a year and the remaining instalments as lump sum on maturity.

There are five investment funds to choose from, of which three are equity funds. You can invest in any of these or go for a duration-based strategy. In this strategy, you allocation starts equity heavy, and the equity portion is tapered as maturity nears. This plan is currently being offered only on Policybazaar.com, a web aggregator. “It is designed for goal-oriented and self-reliant customers. Online aggregators are an important step in the (buying) decision and hence the plan is currently available on Policybazaar.com," said Manik Nangia, director marketing and chief digital officer, Max Life Insurance. 

Max Life has waived off the premium allocation and administration charge on this Ulip. This charge is deducted from the premium, while policy administration charge deducted from fund value. 

“In fact, even the fund management charge is not a flat 1.35% that most other Ulips charge for their equity funds. It’s 1.25% for equity funds and 0.90% for debt funds," added Nangia. Insurance charge will depend on your age, sum assured and the variant chosen. It is deducted from fund value. If a 35 year old buys the Type-1 plan for a term of 25 years, annual premium of Rs1 lakh and sum assured Rs10 lakh; then assuming growth of 8%, the maturity corpus would be Rs61.53 lakh. This is a net return of 6.37%.

While the costs are competitive, there are cheaper plans in the market as more insurers have begun shaving costs. But there are a few concerns. “Insurance cover for the premium paid is inadequate. Also, for investment, equity mutual funds tend to give better returns,"said Shweta Jain, founder, Investography Pvt Ltd, a financial planning firm. “A Ulip makes sense for people who want the convenience and discipline of investing regularly," she added. 

With the re-introduction of long-term capital gains tax on equity investments, Ulips have come under the spotlight because they are currently not affected by this tax. 

However, it is important to understand that the structure of a bundled plan like Ulip is not flexible. So make sure that you understand the plan and are prepared to stay in it for the long haul. 

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