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Product crack: Bajaj Allianz Life Principal Gain

This is a unit-linked insurance plan

This is a unit-linked insurance plan. A Ulip is an insurance-cum-investment plan that invests your money in the market and has a transparent cost structure.

WHAT DO YOU GET?

The policy term ranges from 7 to 15 years, and the premium payment term ranges from five years to the policy term. The sum assured under this plan is fixed at 10 times the annual premium.

In terms of investment, this is a capital protection plan so it doesn’t allow for pure equity investments. Your money is invested in a pre-defined manner in a balanced equity fund and a builder bond fund. The balanced equity fund can invest 10-70% of the corpus in equities whereas the builder bond fund has no allocation to equities.

The asset allocation depends on the policy term. For instance, if you choose a 15-year policy term, the insurer will start by putting 55% of your money in the balanced equity fund, and remaining 45% in the bond fund in the first year, and will gradually move your money to the bond fund as you near maturity. In the last five years, all your money will move to the bond fund. For a term of seven years, the asset allocation starts with 20% in the balanced equity fund. On maturity, you will get higher of the maturity corpus or 101% of premiums paid. If you have paid premiums for at least five years, the maturity corpus includes a guaranteed addition, which is 4% of annual premium if the policy term is 10 years or less, and 15% otherwise.

In terms of insurance, this is a type-1 Ulip, and it will pay higher of the sum assured or fund value when the policyholder dies. As per regulations, payment can’t be less than 105% of all the premiums paid.

HOW MUCH DOES IT COST?

The premium allocation charge is 8.5% of the premium in the first year, and 5.7% till the fifth year. Subsequently, it becomes nil. If bought online, this charge is lower. The policy administration charge is zero in the first five years. Then it becomes 2.5% per annum of the annual premium, subject to a cap of 6,000. This charge is deducted monthly from the fund value. The fund management charge is 1.25% for the balanced equity fund and 0.95% for the bond fund. There is also a charge of 0.25% of fund value for providing capital guarantee.

According to an illustration, if a 35-year-old man takes a policy of term 15 years and annual premium 1 lakh, assuming the fund grows at 8%, maturity corpus will be 24.42 lakh—a net return of 5.88%.

MINT MONEY TAKE

Being a type-1 Ulip with a fixed sum assured of 10 times the premium, the insurance component is weak. Investment wise, since capital protection plans invest only a small part in equities, your money doesn’t get a full upside from equities and capital protection comes at a cost. Though the portfolio rebalancing strategy is good, you can find the same in other Ulips too. The insurer has kept a maximum premium limit of 1 lakh primarily targeting risk averse investors.

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