LIC of India has launched a new ULIP (Unit Linked Insurance Plan) today (19-August-2015). LIC’s New Endowment Plus (Plan / Table no 835) is a unit linked assurance plan, which offers investment-cum-insurance during the term of the policy.
ULIP sales have taken a hit since 2010, when the regulator (IRDA) revamped norms by increasing the lock-in period and lowering commissions on their sales. Ulip sales, which earlier constituted 90 per cent of private life insurers’ overall product portfolios, has now fallen sharply to less than 10 per cent of their portfolios.
In December 2013, LIC and other life insurance companies had to stop offering old products which do not meet IRDA’s regulations. Since 2014 LIC has been contemplating to launch a new ULIP scheme.
New Endowment Plus is the first ULIP scheme by LIC after closure of all older products in December, 2013.
Features of LIC’s New Endowment Plus ULIP Plan
Below are the key highlights of New Endowment Plus ULIP Policy by LIC;
- Eligibility Conditions
- Minimum Age at entry – 90 Days
- Maximum Age at entry – 50 years
- Minimum Maturity Age – 18 years
- Maximum Maturity Age – 60 years
- Policy Term – 10 to 20 years
- Premium Paying Term – Same as Policy Term
- Premium Amount is dependent on the quantum of Sum Assured. The minimum premium amount is Rs 20,000 p.a. and there is no maximum limit.
- Death Benefit – An amount equal to the higher of Basic Sum Assured or Policyholder’s Fund Value shall be payable.
- Maturity Benefit – On Life Assured surviving the date of maturity provided the policy is in-force, an amount equal to Policyholder’s Fund Value shall be payable.
- Fund Options – The allocated premiums will be utilized to buy units as per the fund type opted by the Policyholder. LIC is offering four fund types under New Endowment Plus. Various types of fund options and broadly their investment patterns are as under:
- Premium Allocation Charges: This is 7.5% in the first year, 5% from 2nd to 5th year and 3% after the 6th year.
- Fund Management Charge : It is 0.7% p.a. of Unit Fund for all the four fund types.
- Partial Withdrawal Charge shall not exceed Rs. 100/- on each withdrawal.
- Fund Switching Charge shall be Rs. 100/- per switch. Within a given policy year 4 switches will be allowed free of charge.
- Mortality Charge: This is insurance cum investment scheme. Mortality charge is the cost of life insurance cover, which is age specific and will be taken at the beginning of each month by canceling appropriate number of units out of the Policyholder’s Fund. The rate of Mortality Charge per annum per Rs. 1000/- Sum at Risk for some of the ages are as below:
- Minimum Lock-in Period is 5 years. If you surrender New Endowment Plus policy on or before the expiry of the 5 years’ lock-in period, then the Policyholder’s Fund Value after deducting the Discontinuance Charge (if any) shall be transferred to the Discontinued Policy Fund. You will get 4% as guaranteed interest on this fund. You can redeem this fund after the expiry of 5 years only. If you apply for surrender of the policy after the expiry of 5 years’ lock-in-period, then the Policyholder’s Fund Value as on the date of surrender shall be payable.
- Optional Accident Benefit Rider is available under this New Endowment Plus ULIP plan. The charges towards this rider (if opted) will be taken at the beginning of each month by canceling appropriate number of units out of Policyholder’s Fund while the policy is in-force. This shall be at the rate of Rs. 0.40 per thousand of Accident Benefit Sum Assured per policy year.
- No loan facility is available for New Endowment Plus policy.
Is LIC’s New Endowment Policy a good investment option? – My opinion
ULIPs are promoted as INVESTMENT cum INSURANCE cum TAX-SAVING product. Now, let’s understand each objective.
If your objective is to get Good Investment Return;
- ULIPs can generate decent returns if held for long-term, say more than 10 years or till the maturity. But, to generate investment returns, where does ULIP scheme invest? Obviously, the fund has to invest in Stock markets (indirectly). If ULIP is investing in stocks through funds, then why not invest in mutual funds directly? Do think about this point 🙂
- To get better investment returns, the charges levied by the scheme or fund should be minimum and reasonable. If you compare the charges between ULIP scheme and mutual funds, ULIPs charges are generally on a higher side.
If your objective is to get Insurance cover & Tax-saving;
- A part of the premium you pay under ULIP scheme is utilized to provide insurance cover to you, while the remaining portion is invested in various equity and debt schemes. If your objective is to get high sum insured as insurance cover, you have to pay high mortality charges. So, it is prudent to buy a Term insurance plan, which is cheaper and is available online.
If your objective is to get Good Returns & Tax-saving;
- You can buy ELSS mutual fund.
Below are some more important points to ponder upon
- Term insurance with investments in equity mutual funds can be a better option.
- Portfolio tracking is very easy and transparent in mutual funds.
- Liquidity is very high in case of Mutual Funds. (Liquidity is defined as the ease with which investors can redeem their investment)
- Some insurance agents or advisers mis-sell ULIPs by advising clients to invest for minimum lock-in period only (i.e., 5 years). If you redeem or surrender your ULIP units on or before 5 years of buying the policy, it could be a disaster.
- Even if you buy a plan like New Endowment Plus, you must take a Term insurance to have sufficient protection.
The key point here is, as an Investor you should understand the difference between investment and insurance. Never mix these two important aspects of your financial life. The purpose of insurance is to protect your family in case of any exigencies. The purpose of investment is to build wealth overtime.
To summarize, Mutual Funds and Term Insurance are best alternative to ULIP investment which can provide better returns and more insurance coverage along with income tax benefit. In my opinion, you can give LIC New Endowment Plus policy a miss. Kindly share your comments and views.
(Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net)