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Nath Balakrishnan

IT all started off with the launch of unit-linked insurance plans that attracted a horde of investors who sought returns linked to the market.

Such plans have since evolved and variants of these plans are gradually emerging.

Plans that offer a capital guarantee are one such flavour.

These plans aim to protect the invested capital, thereby cushioning downside risk; market-linked upsides accrue to the investor, though.

InvestShield Life from ICICI Prudential is one such plan.

How the plan works

As in the case of regular unit-linked plans, the premium paid, after deduction of charges towards administration and mortality, are invested in a fund that invests up to a maximum of 30 per cent in equities and the rest in debt instruments.

In a conventional unit-linked plan, the value of the invested premium will fluctuate depending on the vagaries of the market.

What this plan endeavours to do is to limit such a risk; at the same time any market-related gains are passed on to the policyholder.

To illustrate, let's assume that out of the total premium, a sum of Rs 10,000 is invested into the fund.

Should the markets tank and the value of the investment shrinks to Rs 8,000, the policyholder is insulated from the downside risk and his original investment is intact.

Conversely, if the value of the investment rises to Rs 12,000, the gains are the policyholder's (the difference between the returns earned on invested funds and the bonus declared will not exceed 1 per cent in any year).

Apart from the investible portion of the premiums, the declared bonus amounts that accrue to the policyholder are also protected from downside.

The rate of bonus is not guaranteed, though.

Payout

On the policyholder's death, the beneficiary would receive the sum assured and the higher of the guaranteed value or the value of the units in the fund.

The sum assured, to be chosen by the policyholder, has to be a multiple of the annual premium payment.

On survival to maturity, the policyholder would receive the higher of the guaranteed value or the value of the units in the fund.

Other features

Additional credits, as a percentage of the annual premium, are added to the policyholder's account at different points of the policy's term.

However, bonuses declared will not apply to such additional credits.

On maturity, the policyholder gets a life cover for 50 per cent of the sum assured for the next ten years without having to make any premium payments.

The policy can also be surrendered before the end of the policy term; however, in the initial years charges towards surrender are high. A loan can also be taken against the policy after it has acquired a surrender value.

Add-ons

If the policyholder has a surplus, it could be invested under this plan as a top-up; a top-up investment, does not, however, alter the sum assured.

For further protection, policyholders could also choose from a menu of three riders: accident and disability benefit rider, waiver of premium rider and critical illness rider.

Charges

Charges under this plan include a premium allocation charge, fixed charges, fund-related charges and top-up charges. Barring the premium allocation charge, other charges are levied by cancellation of units.

(Readers are requested to compare products featured under this column with similar ones offered by other players.)

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