IDBI Federal Life Insurance has launched a new ULIP – ‘Smart Growth Plan’. This is a Unit Linked Plan with loyalty additions for increasing the fund value. It also offers death benefit options in ‘Prime’ & ‘Plus’. RupeeIQ does a full-review of the product and tells you the good, the bad and the ugly. Read on.
A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan. They are often pitched as alternatives to mutual fund products.
Since Budget 2018, ULIPs enjoy a better tax advantage since ULIP maturity corpus has been kept out of the purview of LTCG tax (Long Term Capital Gain tax). On the other hand, your withdrawal of over one year old investments from equity mutual funds has to face 10% LTCG tax beyond Rs 1 lakh per year. This tax edge for ULIP means that if the costs and returns of a ULIP and a mutual fund are same, the ULIP will give better post-tax returns!
Coming to IDBI Federal ‘Smart Growth Plan’, this ULIP offers four distinct things to an investor.
Number 1 is life protection with market linked returns. A ULIP is an insurance product (although inferior to term plan cover). Since it is more of an investment product, the market-linked returns (derived from investing your money in a range of funds – equity to bond) can grow your wealth.
Number 2 is the choice of six fund options based on your risk appetite. These fund options are Equity Growth Fund, Midcap Fund, Pure Fund, Bond Fund II, Aggressive Asset Allocator Fund, and Moderate Asset Allocator Fund.
Check out the IDBI Federal Life’s ULIP fund performance below. The data is sourced from January 2019 presentation.
Number 3 benefit is that your investments will be boosted with Loyalty Additions.Loyalty additions will be 0.5% of the average fund value over the last 36 months preceding the Loyalty addition allocation date. These loyalty additions are credited to your policy at the end of the 10th policy year and at the end of every 5 years thereafter including the last policy year. These will get accrued.
Number 4 is dual tax benefit under section 80(C) and 10 (10 D). This means you can tax benefit when investing and another tax benefit during maturity.
Take a look at a the comparative chart of different ULIPs.
|Feature||IDBI Federal ‘Smart Growth Plan’||HDFC ‘Click 2 Invest’||Edelweiss-Tokio ‘Wealth Plus’||Bajaj Allianz ‘Goal Assure’|
|Entry Age||Minimum 1 month||Minimum 30 days||Minimum 1 year||Minimum 0 year|
|Maximum age at maturity||60/70 years depending on option||75 years||70 years||75 years|
|Policy term||10/15/20/25 years||5 to 20 years||10 to 20 years||5/10/15/20 years|
|Minimum premium (annual)||Rs 35,000/50,000||Rs 24000||Rs 36,000 to Rs 60,000||Rs 36,000|
|Premium frequency||Annual||Monthly, quarterly, half-yearly, annual and single premium||Monthly, quarterly, half-yearly, and annual||Monthly, quarterly, half-yearly, and annual|
|No. of free switches||Information N.A.||4 per policy year||Unlimited under self-managed strategy||Unlimited|
|Choice of investment funds||Six (6)||Eight (8)||Five (5)||Seven (7)|
|Loyalty additions||0.5% of the average fund value over the last 36 months preceding the Loyalty Addition
|Information N.A.||Extra allocation (1% of annualized premium added between policy year 1 to 5), premium booster (3% to 7% from 6th year onwards)||0.5% for 10 years, 1% for 15 years and 1.5% for 20 years (for annualized premium of Rs 5 lakh or more & for policy term 10 years or greater); fund booster – 10 years (20%), 15 years (40%), 20 years (60%)|
|Premium allocation charge||2% to 4%||Nil||Nil||Nil|
|Policy administration charge||1.25%-3.6% (subject to Rs 6000/yr limit)||Nil||Nil||Rs 400 per annum inflating at 5% per annum, subject to a maximum of Rs 6,000 in any year|
|Partial withdrawal charge||Nil||4 free withdrawals a year; Rs 250 per request from 5th or Rs 25 per request on company’s web portal||Nil||Information N.A.|
|Fund management charge per year||1.25% – bond, 1.35% – rest||1.35%||1.25% – bond 1.35% – rest||0.95% – liquid, bond 1.25%-1.35% – for rest|
|Mortality charge (30 to 60 years)||Male – 0.9 to 4.38 (per Rs 1000); Female – 0.85 to 3.17 (per Rs 1000)||1.0555 to 11.5335 (per Rs 1000)||Male – 1.338 to 14.979; Females lives are based on Male rates with a 3-year setback||Male – 0.80 to 3.91 * (30 to 50 years); Female life assured will be eligible for an age-set-back of 3 years.|
|Discontinuance charge||2% to 6% (Rs 2000-6000); no charge from policy year 5||Nil||2% to 6% (Rs 2000-6000); no charge from policy year 5||2% to 6% (Rs 2000-6000); no charge from policy year 5|
|Switching charge||Nil||4 free switches a year; Rs 250 per request from 5th or Rs 25 per request on company’s web portal||Nil||Unlimited free switches under Investor Selectable Portfolio Strategy|
Since any ULIP is an investment, it is important to understand what you will get at maturity. Upon survival of life insured under IDBI Federal ‘Smart Growth Plan’ ULIP till the date of maturity, you can get the fund value including Loyalty Additions as on date of maturity provided policy is in force. Once the maturity benefit is paid out, the plan terminates.
Let’s understand with an example. A 35-year old Smart Growth Plan (Option 2 – Plus) for a policy term of 20 years. He pays an annual premium of Rs 50,000 for 10 years for which the sum assured is Rs 5,00,000. He pays premium for 10 years and then there is another 10 years. His 100% money is invested in the Equity Growth Fund. At 8% projected investment return, his maturity benefit, including loyalty additions, would be Rs 11.64 lakh. At 4% projected investment return, his maturity benefit would be Rs 6.28 lakh.
Do note that you may choose to withdraw your maturity benefit in periodic instalments over a period of maximum of five years from the maturity date instead of redeeming the entire amount on the maturity date itself. During this period, your Fund Value will continue to participate in the performance of unit-linked funds as chosen by you and you will also bear the associated investment risks. The applicable charges for fund management will be deducted by the company and no switching or partial withdrawals will be allowed during this period.
The instalments will be paid annually, at the beginning of each year with first instalment being paid at maturity. You will also have the flexibility to withdraw the entire Fund Value at any time during the settlement period.
In case you have opted for the Systematic Allocator (scroll down to read about this facility), the funds will remain invested as at maturity and there will be no further rebalancing. The risk cover will cease at maturity and is not applicable during the period of the settlement. In case of death of the Policyholder during the settlement period, only the available Fund Value shall be paid.
An ULIP offers insurance too. So, what happens if the life insured dies? Their nominee or legal heir will get death benefit. In case of death of the life insured during the policy term, provided the policy is in-force, the death benefit as per the option chosen at inception will be paid to the beneficiary and the policy will terminate.
Here there are two options in case IDBI Federal ‘Smart Growth Plan’ ULIP.
Option 1 – Prime. As death benefit, they will get higher of death sum assured, or fund value, or 105% of the total premiums paid. Do note that the death sum assured shall be reduced to the extent of partial withdrawals made during the two year period immediately preceding the death of the life assured.
Option 2 – Plus. As death benefit, they will get higher paid is higher of death sum assured plus fund value, or 105% of the total premiums paid. Do note that the death sum assured for the plan is higher of 10 times the annualised premium, or 0.5 times premium term multiplied by annualised premium. Also, there will be no reduction in death sum assured on account of partial withdrawals under this option.
Systematic Allocator option
You have the option to choose the Systematic Allocator at inception of the plan or switch to this option on any policy anniversary. Under this programmed investment solution, the fund mix becomes more conservative as the investment goal approaches.
Your funds are invested in Equity Growth Fund and Bond Fund II based on the residual time to maturity of the plan. This strategy moves the fund allocation towards Bond Fund II as the plan approaches the maturity date. By reducing exposure to Equity Growth Fund, the risk of a sudden drop in the equity market affecting the accumulated value diminishes.
Balance/Residual time to maturity of the plan is used to determine the proportion of allocation to the Equity Growth Fund and Bond Fund II. This proportion is pre-defined by the Systemic Allocator “Glide Path”. Glide Path means the proportion allocated to the Equity Growth Fund and Bond Fund II based on the time remaining for the plan to attain maturity.
For instance, if there is 15 years balance time to maturity, equity growth fund will have 80% money while bond fund II will have 20% money. As the time reduces, each year, 5% money will be reduced from equity growth fund and 5% allocation will increase to bond fund II. So, it will be 75% in equity and 25% in bond when there are 14 years. This will be how it will change. When there is 1 year to maturity, the portfolio will look like 5% in equity and 95% in bond.
AutoSwitcher is a value added service available under this plan whereby it switches the funds automatically as per set of instructions given by you. AutoSwitcher can be used to make programmed switches every month wherein a fixed amount can be switched monthly from one fund to another fund on a fixed date. You can specify the funds from which the desired amounts are to be switched out and the funds to which the amounts are to be credited, says the company.
RupeeIQ take – At first glance, this ULIP does not seem to have done away with charges such as premium allocation and policy administration. Some of the ULIP offerings of competitors have a better charge structure. However, the mortality charge (cost of insurance) in IDBI Federal’s product appears to highly competitive. Also, in this ULIP there are no limits on the number of switches or premium redirection done during the policy term and this does not attract any charges.
Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.