Portfolio

Should you go for MAX Life’s Flexi Wealth Plus?

Rajalakshmi Nirmal BL Research Bureau | Updated on June 29, 2020 Published on June 29, 2020

The policy offers more choices and flexibilities, but is a tad higher on cost; returns of the equity oriented fund are attractive

If you are looking for a market-linked investment and willing to stay put for 10-20 years, you can consider investing in unit linked insurance plans (ULIPs) — combo products that act as both a life insurance cover and as an investment.

While mixing insurance and investment is not a smart thing to do as it increases costs, for someone wanting to diversify from mutual funds and eyeing tax benefits under Section 80C and Section 10 (10D) of the Income Tax Act, ULIPs are a good option. Given a low-cost structure akin to mutual funds, an array of investment options — from equity to debt — and the tax benefit, these products are a popular investment tool.

Max Life Insurance Company (claim settlement ratio in 2019-20: 99.22 per cent) recently launched ‘Flexi Wealth Plus’, a unit linked insurance, which has its share of pluses and minuses.

What’s on offer?

There are two variants under Flexi Wealth Plus: the Wealth plan and the Whole Life plan. Under the Wealth variant, policy term options are 10/15/30 years; premium can be paid over the life term of the policy (regular premium payment term, or PPT), or in one settlement, or annually for a period of 5-29 years (limited premium payment). The minimum premium accepted is ₹50,000 in limited PPT and ₹25,000 in regular PPT.

Under the Whole Life variant, the policy term is 100 minus the age of the individual. PPT is minimum seven years and maximum 20 years. Minimum premium is ₹1 lakh. The product offers 10 funds (from pure equity to pure debt and balanced funds) as a choice. If none of these interests you, you can choose from the four automated investment strategies or a self-managed portfolio.

In a self-managed portfolio, you can choose a combination of any of the funds offered by the product; fund switching and premium re-direction can be done free of cost.

The four automated investment strategies are — Systematic Transfer Plan, where the full premium (net of charges) will be invested in a debt oriented fund and then one portion every month will get transferred to an equity oriented fund; Lifecycle Portfolio Strategy, where investment is divided between an equity oriented fund and a debt fund according to the life stage; Trigger Based Portfolio Strategy, where investment in equity oriented and debt funds is in the ratio of 75:25 — the portfolio gets rebalanced whenever there is fluctuation based on a pre-decided trigger event; and Dynamic Fund Allocation Strategy, where investment is divided between an equity oriented fund and a debt fund in a proportion that depends on the years left to maturity.

Akin to most ULIPs in the market, Flexi Wealth Plus offers guaranteed loyalty additions (only for annualised premium over ₹1 lakh). This is a percentage of the fund value (0.25/0.4 per cent, depending on premium) and is given each policy year starting from year six. Besides this, policyholders will get guaranteed wealth booster (also only for annualised premium above ₹1 lakh), which is offered as a percentage of fund value and added as a unit to the fund at the end of every five years starting from year five.

On death of the life assured anytime during the policy term, the plan would pay the sum assured or fund value, whichever is higher.

Our take

Max Life’s Flexi Wealth Plus gives plenty of investment choices; the Systematic Transfer Plan, which staggers investment into the equity fund and helps tide over market volatility while ensuring your money gets more returns than what it earned when it was in the savings bank account, is a good option to go for. For a savvy investor, the ‘self-managed’ portfolio strategy will work. Premium re-direction is allowed six times a year and switching between funds is allowed any number of times — both, free-of-charge. Today, many ULIPs in the market offer similar investment options.

One highlight of the policy is the flexibility it offers: increase/decrease in premium payment or policy term any time and the option to take the maturity amount in five annual instalments. The option in ULIPs for policyholders to ask for a 50 per cent reduction in premium after the completion of five years of lock-in (will come with proportionate reduction in SA), as was recently directed by the IRDAI, is also available in this product.

However, on the charges front, the policy is a tad expensive. It levies premium allocation charge of 6 per cent for the first 10 years. Besides this, there is a policy administration charge. The mortality charge is returned at the time of policy maturity, like some other ULIPs in the market. That said, Bajaj Allianz Life Goal Assure does not levy a premium allocation charge. In Future Generali Big Dreams ULIP, there is no premium allocation or policy administration charge. In ICICI Pru Signature, there is no premium allocation charge; both policy administration and mortality charge is returned at maturity.

In Flexi Wealth Plus, net yield (returns net of expenses) for a gross return of 8 per cent (Wealth variant) for a male of age 40 years investing a premium of ₹50,000 for 20 years is 6.06 per cent. There are plans in the market where the net yield given the same assumptions is higher. For gross return of 8 per cent, in HDFC Life’s Pro Growth Flexi, the net yield is 6.06 per cent; in HDFC Life’s Click2Wealth, the online ULIP, the net yield is 6.6 per cent; in Bajaj Allianz Life Goal Assure, it is 6.63 per cent; in ICICI Prudential Signature, it is 6.74 per cent.

When investing in ULIPs, however, the returns of funds should be a key deciding factor.

In the large-cap space, Max Life’s Growth Super is among the top five funds. With other funds, returns either match benchmark returns or are a tad lower.

Published on June 29, 2020
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