Photo: iStockphoto
Photo: iStockphoto

A ULIP that returns mortality costs on survival

Bajaj Allianz Life Insurance's new ULIP Goal Assure has a zero premium allocation charge and it also reimburses mortality cost on maturity

Unit-linked insurance plans (ULIPs) have become popular recently and some of the new offerings are boasting of zero premium allocation and policy administration costs. One of them is Bajaj Allianz Life Insurance Co. Ltd, whose new ULIP Goal Assure has a zero premium allocation charge and it also reimburses mortality cost on maturity.

A premium allocation charge is a straight deduction from the premium; the remainder is invested in the fund of your choice. It’s from this corpus that other costs like policy administration charge, mortality charge and fund management charge are deducted.

What do I get?

From an insurance point of view, this is a type-1 ULIP: on death of the policyholder during the policy term, the insurer pays the higher of the fund value or the insurance cover, subject to a minimum of 105% of the premiums paid.

The sum assured under this plan is a minimum of 10 times the annual premium and can go up to 20 times the annual premium for younger age groups and higher premiums and policy term.

In terms of investment, there are eight funds to choose from—four equity funds, one hybrid fund, one index fund, one debt fund and one liquid fund. You can either choose on your own or choose among three investment strategies that pre-allocate funds as per your goal.

If you choose a higher premium of at least Rs5 lakh and a policy term of 10 years and above, the policy pays a loyalty addition starting from the sixth policy year. For instance, for a term of 15 years, the policy will allocate 1% of the premium to the fund every year.

The policy also adds extra allocation on maturity. A 15-year term will get an extra allocation of 40% of the annualised premium. This maturity addition is applicable if you choose a policy term of at least 10 years. So if the annual premium is Rs50,000, then on maturity another Rs20,000 is added to your fund value.

This is not the only addition to your fund value. You also get a refund of mortality costs on maturity. “Mortality costs are deducted by cancelling the units at the prevailing NAV (net asset value) throughout the policy term. On maturity, the total mortality cost deducted gets added back," said Saisrinivas Dhulipala, appointed actuary, Bajaj Allianz Life Insurance.

“Our experience with unit linked business has been good, and so we want to return the mortality cost, which will add to the fund value and encourage people to stay with the policy till maturity. So this insurance policy works more as an investment product on maturity," he added.

You can also choose to get maturity benefit at one go or in five instalments where each instalment is hiked by 0.5%. If you choose to surrender or stop paying premiums, you will not get this mortality addition, or other boosters.

Charges and returns

While there is no premium allocation charge, the fund management charge ranges from 1.35% for pure equity funds to 0.95% for debt funds. The policy administration charge is Rs400 in the first year and will increase by 5% every year, subject to a cap of Rs6,000.

The mortality cost will depend on factors such as your age, sum assured, policy term and premium paying term, and it will reduce as the fund value of the policy gets closer to the sum assured mark.

Suppose a 35-year-old man buys a policy with a term of 20 years for an annual premium of Rs1 lakh and a sum assured of Rs10 lakh, the maturity fund value (assuming the policy gives an 8% return) will be Rs40.57 lakh, which is a net return of 6.34% (see chart).

Mint Money take

This ULIP allows you a higher sum assured. In terms of costs, the policy is competitive and may work out to be the cheapest in some cases. But unlike other low-cost plans that don’t have a policy administration charge, this plan does, and that mitigates the benefit of roll back of mortality costs to some extent.

“Return of mortality costs makes this policy less expensive. However, lock-in in a ULIP means you can’t exit an underperforming policy. I recommend that customers shouldn’t mix insurance and investments but those who want to buy a ULIP can consider this plan," said Pankaj Mathpal, managing director, Optima Money Managers Pvt. Ltd.

Return of mortality costs is a good feature but be mindful of the lock-in and the fact that ULIPs are not portable.