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)
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Thoughtful comments – I was enlightened by the information . Does anyone know where my company could possibly get access to a fillable a form example to edit ?
Hi,
I have first time invested and that too in HDFC Life Click 2 Invest ULIP for 10 years my doubt is can I purchase LIC Insurance for self. B’coz some1 told me that I cannot carry 2 insurance at a time.
Dear Sunil,
All you require is a good Term insurance plan. You can purchase and hold multiple life insurance policies.
Read : Best Term insurance plans.
hi ..
My age is 23 . Suggest me for my first investment (Like ULIP , ELSS)
I can invest 3-5k PM ..
Dear Ramesh,
Start investing in Equity mutual funds.
If your investment objective is to accumulate wealth & also tax saving, consider ELSS funds.
Kindly read : Best ELSS funds.
Also, buy a Health insurance plan for self.
Hello,
Sir,im LIC agent Kindly reply me for my query that , what is the commission rate for “New Endowment Policy” .
Dear Ram..You may contact your Business Development officer or nearest LIC office for information on Commission.
Even in Mutual funds there are charges then only they declare NAV. NAV is calculated after expense ratio. The expense ratio is the total amount of annual expenses incurred by the fund. It includes the management fee and operating expenses like the registrar and transfer agent fee, audit fee, custodian fee, marketing and distribution fee
Hi sreekanth,
Iam 30 years of age. I was completely unaware of mutual funds and its benefit until last year.
2014 i had selected some funds and started monthly sip of 30000.
following are the funds.
birla sunlife frontline equity, BSL MNC fund
Icici pru focussed blue chip, icici balanced fund, icici top 100, icici value discovery
hdfc midcap opportunities
sbi emerging business
L&T india large cap fund
Franklin blue chip, prima fund and prima plus.
Do i need to change any of these.
Iam planning to invest for long term. main purpose is to build corpus for my retirement and building home.
I posess a term insurance plan from aegon religare for 1crore.
I have a daughter of 3 years and for her i had started a recurring deposit scheme in IOB for 100 months of 7000rs per month.
Iam planning to open sukanya samridhi account also for her with annual contribution of around 80000rs.
also would like to start an NPS account for me with 5000rs contribution per month.
Kindly advise whether Iam in right track and do I need to change any of the above mentioned.
regards
adarsh
Dear Adarsh,
Almost all your funds are good ones, but the issue can be ‘overlap of portfolios’.
Kindly go through my article ‘Mutual fund portfolio overlap tools’ and try to trim your MF portfolio (no of funds).
For example : You have invested in 3 large cap orientd funds which may not be required (like icici focused / franklin bluechip/ l&T large cap).
It is not advisable to invest in FDs/ RDs for long-term. Suggest you not to go for NPS. Do you have health insurance cover?
Kindly go through below articles;
Avoid investing in FDs/RDs for long-term
Retirement planning made easy
Kid’s education goal planning.
Best Personal Accident insurance plans.
Hi Sreekanth,
Continuing my query on Child Insurance policy, I have already bought IDBI Federal Future Star Policy after having studied New Child Plan from LIC ( useless product which has child as insured)
Future Star is a ULIP product. I am going to invest 25,000/- p.a for next 22 years. Person to be insured is me (parent). Partial withdrawal available after 5 years although we do not intend to use it. 9 different funds to invest in. Unlimited switches between funds is allowed at free of cost. Premium waiver rider is in-built. Sum Assured is higher of 10 times of annualized premium or fund value on maturity. Benefit Illustration shows maturity value of around Rs. 12 Lacs at 8% (Net yield around 6.40%). I am hoping a return of more than 10% over policy period. (So that net yield be more than 8% keeping pace with long term inflation)
Charges are as follows;
Premium Allocation Charges – Year 1 – 3.15% Year 2 to 22 – 0
Administration Charges – Year 1 to 5 – 6.30%, Years 6 to 22 – 3.15%
Mortality charges – comparable to other insurers ( with + – 5% deviation)
Fund Management Charges – 1.35% every year
Agent’s commission – Year 1 – 10% Years – 2 to 22 – 0.5%
My asset allocation is 50% towards large cap funds and 50% towards mid-cap funds. Funds are consistently beating index returns over last 5 years.
As per your advise on my previous post, we are planning to close our existing traditional plans from LIC and buy Term Plan from them instead.
Have I made right choice?
Your opinion is sought.
Thanks.
Dear Rupali,
Personally I do not like investing in ULIPs. Why would I want to pay so many charges and get less life cover??
What about tax saving? ULIP comes under which section of tax exemption?
Dear Shunny..The premium amount can be claimed as tax deduction under section 80c.
Hi Sreekanth,
I can able to invest 5k per month but unable to know on what type of SIPs I have to invest.
I am expecting a good returns after 5 years of investment.
Let me know if RD(Recurring Deposit ) or SIP is good to invest?
Dear Likin,
Suggest you to go through the below articles;
Best Balanced funds
Top Equity Funds