ULIP Review: HDFC Click2Invest stands out with low chargesA ULIP or Unit Linked Insurance Policy is a life insurance policy that also allows you to invest in the equity and debt markets and grow your money. It has a maturity value that is linked to the NAV or Net Asset Value of the funds you hold within the ULIP.

Think of the ULIP as a ‘wrapper’ inside which you can hold funds and shift between funds. You do not have to pay long-term capital gains tax for these shifts, so long as your money is held inside the ULIP ‘wrapper.’ This has given HDFC Click2Invest and other ULIPs something of an edge over mutual funds. However ULIP charges remain a concern.

Policy Term

This ULIP has policy terms ranging from five years to 20 years. You can pay premiums for some or all of these terms as mentioned below.

You can choose one of the three premium payment terms:

  1. Single Premium – You pay one time and that’s it. However, you get no tax deduction.
  2. Limited Premium – 5 years, 7 years or 10 years
  3. Regular Premium – You pay for the same number of years as your policy term (minimum 5 years).

Note that you only get a tax deduction on your ULIP contribution if the sum assured (life cover) is at least 10 times the annual premium. This is applicable, by default, in this ULIP to limited and regular premiums if you are 55 years of age or below.

Death Benefit

If you die during the policy term, your nominees will get the higher of:

  1. Sum Assured – 10 times annual premium for regular and limited premium options if you are 55 or below and 7 times if you are above 55.
  2. Fund Value (This can exceed sum assured due to growth in the investments of the ULIP)
  3. 105% of premiums paid

Maturity Benefit

You get the fund value which is determined by the performance of the funds that your ULIP invests in. Since this policy is a ULIP there are no complicated guaranteed bonuses or terminal bonuses.

Surrender Value

If you surrender within five years of commencement, your life cover ceases and your money is moved to the discontinued policy fund. Here it earns the savings bank account rate. Your fund value is paid out to you after five years from the commencement. A similar process results if you default on your premiums. However, you can revive a policy within two years of default.  

If you surrender after five years, your life cover ceases on surrender and you are paid out the value of your ULIP as per the NAV of the funds you’ve invested in.

Loans

You can’t get loans against this ULIP.

Charges

Premium Allocation Charge – For the allocation of premium between insurance and investment Nil
Policy Administration Charge – For the administration of the policy Nil
Fund Administration Charge – For the management of the ULIP funds 1.35% per annum
Mortality Charge – For the provision of life cover Yes. Deducting by cancelling a proportionate number of units. Driven by a complex formula based on your age. Lower, the younger you are.
Partial Withdrawal Charge Four free partial withdrawals allowed per year after you complete 5 years in the ULIP
Discontinuance Charge Nil. However, note that your money is locked in for five years in any case by IRDA rules. Discontinuing within the first five years will simply transfer your money to a discontinued policy fund which will earn the savings bank account interest of 4%.
The number of free switches allowed per year Four. You can also ‘re-direct’ future premiums to different funds. Four such free re-directions are allowed per year.

You can make partial withdrawals from the ULIP after five years pass. Four such partial withdrawals are allowed for free per year.

ULIP Funds

The below table indicates how the eight funds offered under this ULIP have performed over the past five years. As you will notice, the equity funds have outperformed their benchmarks but not the debt funds.

Fund Invests in/Strategy Benchmark 5 year returns (annualized) Benchmark Returns Outperform?
Equity Plus Fund Similar to Nifty 50 Index Nifty 50 6.12%  (three years) 5.63%  (three years) Yes
Diversified Equity Fund Multicap BSE 100 12.55% (three years) 6.50% (three years) Yes
Bluechip Fund Large-cap BSE 100 15.14% 13.69% Yes
Opportunities Fund Midcap Nifty Free-float Midcap 100 21.69% 21.13% Yes
Balanced Fund Equity and Debt 60% (BSE 100) and 40% (CRISIL Composite Bond Index) 12.58% 11.52% Yes
Income Fund High risk and return bonds (credit and interest rate risk) CRISIL Composite Bond Fund Index 7.43% 8.26% No
Bond Fund All fixed income instruments CRISIL Composite Bond Fund Index 5.29% (three years) 7.6% (three years) No
Conservative Fund Low risk and return bonds (Government securities and high-grade debt) CRISIL Short Term Bond Fund Index 6.21% (three years) 7.78% (three years) No

Source of Returns: HDFC Life Insurance; Data as on 28th February 2018

RupeeIQ Take

The relatively low charges on the policy make it an attractive choice in the ULIP universe. Fund performance has been mixed, with the ULIP’s equity funds outperforming their benchmarks and debt funds underperforming. If you have a five-year horizon and do wish to combine life insurance with investing, this might work for you. You can opt for the limited pay term of five years or regular pay term of five years (the effect for both is the same). After five years you can withdraw your money if you so chose without incurring any significant charges.

Key Details

Age of Eligibility: 0 – 65 years

Sum Assured – 10 times annual premium for regular and limited premium for entry age below 55. Seven times for entry age above 55.

Minimum Premiums: Annual – Rs 12,000; Single – Rs 24,000, Monthly – Rs 1,000, Quarterly – Rs 3,000, Half yearly – Rs 6,000

Maximum Premiums: No upper limit

Policy Term: 5 – 20 years

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.