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Product crack: ICICI Prudential Smart Life

It is a unit-linked insurance plan that invests in the markets

It is a unit-linked insurance plan (Ulip) that invests in the markets.

There are two premium payment options: regular and single. Since we recommend periodic investments for long-term vehicles, we will focus on the regular premium option. The insurance cover or sum assured ranges from 10 to 30 times the annual premium, but the maximum depends on your age. For instance, a 25-year-old can choose a maximum sum assured of 30 times the annual premium, while for a 35-year-old, it will be 15 times. Also, for those who are 45 years of age or more, the minimum sum assured is seven times the annual premium, and the maximum is 10 times.

This is a type-2 Ulip that pays both the sum assured and the fund value on death of the policyholder (a type-1 plan will pay only the higher of the two). It also comes with an inbuilt waiver of premium feature. This means that on death of the policyholder,, the insurer will immediately pay the higher of the sum assured or 105% of the premiums paid and then pay the remaining premiums of the policy. On maturity, the beneficiary gets the fund value.

In terms of investments, there are eight funds to choose from: five equity, one balanced and two debt. You can choose from among these or go for the lifecycle-based portfolio strategy in which, depending on age, you start with a higher equity allocation, which reduces as you grow older. On maturity, you could either take all the fund value as a lump sum or stagger it across up to five years.

What’s special?

From the end of the sixth year, every year the insurer will pay 0.25% of the fund value and another 0.25% on paying premiums regularly. Also, from the 10th policy year and at a gap of five years, you get 3.25% of the fund value. Here the fund value means the average of the fund values of past eight policy quarters.

How does it work?

There are primarily four cost heads in a Ulip. The premium allocation is the first and is deducted from the premium. The other three—mortality, policy administration and fund management—are deducted from the fund value. The premium allocation charge in this plan is 6%, and tapers to 2% from the sixth year. If you buy directly from the company website, only 5% is deducted in the first year. Policy administration charge is 2.52% of the annual premium per annum (capped at 6,000 per annum) and is levied monthly. Fund management charge is 1.35% for seven funds and 0.75% for the money market funds. Say, a 35-year-old man buys it for 25 years at a premium of 1 lakh. The maximum sum assured will be 15 lakh. At a fund management charge of 1.35% and an assumed return of 8% per annum, the maturity corpus will be around 59.58 lakh, a net return of 6.16%.

Mint Money take

As an investment, Ulips are better than traditional plans in terms of cost and transparency. But Ulips are for the long term and are more about investments, less about insurance. Don’t depend on Ulips for insurance needs, and if you decide to invest in Ulips, stay committed for the long term.

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