The lower-cost ULIP (Unit Linked Insurance Plan) space has a new entrant. Canara HSBC Oriental Bank of Commerce Life Insurance has introduced ‘Invest4G’. Like others, the product is designed for the digital new age customer. On the face of it, the product is packed with features like the return of mortality charges at policy maturity, zero premium allocation charge, zero policy administration charge, and the choice of many investment funds. Let us understand the product in detail and read the RupeeIQ take at the end.
The ULIP product combines insurance with investment. While five to 10 years ago, ULIPs were high-cost (due to high commissions for agents), today the ULIP market is slightly different with the advent of new-age ULIPs (NULIPs). These are extremely lower-cost investment products which can be compared to mutual funds. Plus, they also give some insurance cover. The chances of misselling are much lower in the new ULIP crop. You can view the Canara HSBC Oriental Bank of Commerce Life Insurance ‘Invest4G’ similarly.
It will compete with Wealth Plus (Edelweiss-Tokio Life Insurance), Goal Assure (Bajaj Allianz Life Insurance), Click2Invest (HDFC Life Insurance), eWEALTH (SBI Life Insurance), and iMaximize (Aegon Life Insurance) among others. The 4G name has been coined to denote 4Gs – Gain, Goal, Get and Growth.
Lower-cost ULIPs are sold online. To attract investors, companies have done away with a lot of charges and brought in a lower-cost structure. Plus, there are some features that add an extra return after the investor stays for a certain period of time. Since these ULIPs have a base in insurance, they also offer some cover (7-10 times annualized premium).
Let us look at some interesting features in Canara HSBC Oriental Bank of Commerce Life Insurance ‘Invest4G’.
* Fund options – There are 7 investment funds ranging from 0% to 100% equity exposure, to match your appetite towards investment risks and returns. These are the Emerging Leaders Equity Fund, India MultiCap Equity Fund, Equity II Fund, Growth Plus Fund, Balanced Plus Fund, Debt Fund, and Liquid Fund. Other ULIP products have 3-8 investment funds.
* Portfolio management options – There are 4 strategies that enable you to optimise returns from the policy. There is Systematic Transfer Option (STO) enables you to enter volatile and unpredictable equity market in a systematic manner. There is Return Protector Option (RPO) that helps you in protecting your gains of equity market by automatically moving such gains into a low-risk fund to avoid future equity market volatility. Auto Funds Rebalancing Option (AFR) enables you to maintain the allocation of your savings in a specific proportion across funds, irrespective of market movements. Safety Switch Option (SSO) enables you to systematically move your savings into a low-risk fund near maturity to safeguard your returns.
* Death & maturity benefit – In case of unfortunate death of the life assured while the policy is in force, the death benefit will be as per the Benefit Option chosen by you and will be paid to the Claimant. There are three benefit options – Life Option, Life Option With Premium Funding, and Whole Life Option. Your policy will mature at the end of the policy term as chosen by you at inception. You will receive the fund value based on the prevailing NAVs at maturity. Once fund value is paid, risk cover will cease and your policy will be terminated.
* Entry & maximum entry age – 18 years to 65 years depending on the option chosen. The minimum policy maturity age is 23 years and maximum policy maturity age is 80 years.
* Premium – Minimum premium amount is Rs 50,000 per annum, Rs 30,000 semi-annually, Rs 15,000 per quarter and Rs 5,000 per month. No maximum limit.
* Policy term – Premium payment term under limited pay and regular pay is 5, 6, 7, 8, 9, 10, 15, 20, 25 and 30 years across different options. The policy term could be 5 to 30 years for ‘life option’ and ‘life option with premium funding’. For ‘whole life option’, the policy term is 99 years minus entry age.
* Loyalty additions, fund/wealth boosters – This ULIP provides fund value related Loyalty Additions from the end of every 5th policy year starting from the commencement of the policy i.e. 5th Policy Year, 10th Policy Year, 15th Policy year etc. provided all the due premiums are received till that time. The Loyalty Additions will be added in the same proportion as the value of total units held in the unit linked funds at the time of additions. The Loyalty Additions will be equal to 0.5% of the average Fund Value of last 60 monthly policy anniversaries.
Some competing ULIP products give loyalty additions as a percentage of one annualized premium from the 6th year onwards – 0.5% after 10 years, 1% after 15 years and 1.5% after 20 years. But in those products, loyalty additions are not payable for annualised premium below Rs 5 lakh or where the policy term is 5 years.
Coming to wealth/fund boosters, Canara HSBC Oriental Bank of Commerce Life Insurance ‘Invest4G’ offers this benefit based upon premium payment term. Typically, the wealth boosters will be paid as a percentage of average fund value of last 60 monthly policy anniversaries and will be added in the same proportion as the value of total units held in the unit linked funds at the time of additions. This percentage ranges from 1-3%. For regular premium policies under Benefit Option 3 (Whole of Life Option), wealth boosters of 3% of average fund value of last 60 monthly policy anniversaries will continue to be paid in a gap of every 5 years, post completion of first 30 policy years.
* Return of Mortality Charge – The cost of the insurance cover provided by ULIPs is deducted as mortality charge. That is the cost of insurance in a ULIP. Some firms have tried to return this cost to ULIP investor. Canara HSBC Oriental Bank of Commerce Life Insurance ‘Invest4G’ attempts to do the same. An amount equal to the total of all the mortality charges deducted during the policy term will be added to the fund value at the maturity date, provided all due premiums have been received till the maturity date. The amount of return of mortality charge (ROMC) will be added in the same proportion as the value of total units held in the unit linked funds at maturity. Unit Price as on the maturity date will be used for the unitisation. The return of mortality charge is not applicable in case of a surrendered, discontinued or paid-up policy and will be payable provided all the due premiums have been paid till maturity date. Do remember the return of mortality charge feature is only available under benefit option 1 (Life Option) and is not available under the other two benefit options.
One of the competing ULIPs also offers ROMC facility.
* Charges – In ‘Invest4G’ there is no premium allocation charge and no policy administration charge. Many competing products charge a fixed sum as policy administration charge. The product has also done away with switching charge and partial withdrawal charge. Many of the competing ULIP products have a limited number of free switches and partial withdrawals; once the free limit is crossed, you may have to pay Rs 100-250 per withdrawal/switch.
There are fund management charges of 0.80% to 1.35%, which are competitive.
Also, the surrender and discontinuance charges (up to Rs 6,000) apply. This is pretty standard across most lower-cost ULIPs
Tax benefits – ULIPs are more tax efficient than mutual funds today. Premiums under this plan provide tax benefits at the time of paying the premium and at the time of receiving the benefits.
RupeeIQ take – We believe that the ‘Invest4G’ product is a competitive proposition. It does give fair value. But we must remember that the actual returns of any ULIP are from investment management. Since this is a new product, we do not know how the fund manager would perform, just like it happens in a new fund offering (NFO) of a mutual fund. Digital savvy customers who are looking for investment-cum-insurance solutions with value-packed features should find a lot of good things in this product. As one of the lowest cost new generation ULIPs now available in the market, ‘Invest4G’ does make its mark. With ROMC, the insurance protection cover is practically available at zero cost. In a normal term insurance plan, the cost of insurance is a liability if you survive. In a ULIP with the return of mortality charge, the insurance is virtually free if you are in for the long-term.
Do consult with your financial advisor about adding this product to your investment basket.