Max Life Insurance has launched a low-cost unit-linked insurance policy that dynamically allocates your money between equity and debt assets.
The maximum age at entry and maturity is 55 years and 65 years, respectively. The policy term can extend up to 20 years with a limited premium payment term of five years.
The minimum premium accepted under the plan is ₹2 lakh and there is no limit on the upper end of premium.
On maturity, the plan will give the fund value to the policyholder. On the death of the insured, the sum assured or the fund value, whichever is higher, will be paid. The sum assured is 10 times the annual premium as per regulations. The policy allows partial withdrawals of a maximum of two times in a year after the fifth year.
What’s on offer? The plan gives policyholders assured benefits in the form of guaranteed loyalty additions and wealth boosters which will be allotted by creating additional units at the end of each year.
If the premium is ₹5 lakh (or above), the loyalty additions, which start from the sixth year at 0.10 per cent of the fund value, go up to 0.8 per cent in the 20th year. Guaranteed wealth boosters start from the 10th year and are paid with a gap of five years.
For a premium of ₹5 lakh (or above), the wealth booster given in the 10th, 15th, 20th year will be 2.5 per cent of the fund value each year.
The policy offers ‘dynamic fund allocation’ to customers where, in the initial years of the policy, a large portion of the premium is invested in equity-oriented funds and, as you age, the investment shifts to conservative funds.
However, if you are not keen on dynamic allocation, there is an option to choose your own investment strategy. There are five fund options, including a conservative fund that invests largely in debt with about 15 per cent in equity; one equity-oriented fund in which, at any point in time, the exposure to equities is not less than 70 per cent, and a balanced fund.
Charges The premium allocation charge is 5 per cent which falls to 4 per cent by the third year and is nil from the 11{+t}{+h} year.
There is no policy administration charge in the plan after the fifth year. The fund management charge varies between 0.9 per cent and 1.25 per cent depending on the choice of fund.
If the policy is surrendered in the first five years, when it is in a lock-in period, charges will apply in accordance with regulations.
Our take Unit-linked insurance policies have become competitive in recent years with a sharp cut in their costs. The Max Life Wealth plan is even cheaper than standard ULIPs.
The difference between the gross and net return at maturity after 20 years is expected to be only 1.23 percentage points compared to about 1.65 to 1.86 percentage points for existing ULIPs. So, on the expenses front, the policy looks attractive.
Further, the policy doesn’t limit the number of switches in a year, but every switch has to be for a minimum amount of ₹5,000. There will be no levy of charges for switches.
The company however, reserves the right to restrict switches any time with the approval of the regulator.
What however determines returns from a ULIP is the performance of its funds. Unless ULIPs match up to their mutual fund peers on returns, it doesn’t make sense to go for them based on their lower charge structure alone.
On this count, Max Life’s five funds have outperformed their benchmarks over one-, three- and five-year time frames.
Its Growth Super fund, which has invested at least 70 per cent in equities, has given an annual return of 18.9 per cent in the last three years.
Equity-oriented balanced funds of MFs have managed 17-18 per cent return for the same period.
One factor that still makes ULIPs a sub-optimal option is their lock-in period.
Unlike open end equity funds, where exit is allowed anytime after the initial investment, in ULIPs the funds are locked in for five years.
True, any investor who parks money in equities, has to be prepared for a five-year wait. But while investors cannot do much about market performance, an early exit option in equities allows an investor to exit a fund or ULIP if it lags relative to its peers.
Also, in ULIPs, charges to an extent are still front-loaded and an exit in the initial years can impact returns.