Today LIC is launching a new plan called “Wealth Plus”, an unit linked insurance plan (ULIP) having a term of 8 years. As usual, here is my review on this plan with inputs from a development officer working with LIC based in Bangalore. On this blog you can also read about other ULIP products available in the market by various insurance companies. This plan comes with an option of choosing from either of a single premium or 3 years payment term. LIC Wealth Plus plan will be available for three months from 9th February 2010 and the plan closes for sale after those initial three months. There after the funds collected will be invested in equity market, implying that the risk is only medium.
Let us take a look at the salient features of this plan:
- Gauranteed return of highest NAV of the first 7 years or the 8th year NAV, whichever is higher.
- 8 years of Policy term
- Either 3 years premium payment term or single premium as per client’s choice.
- Minimum single premium of Rs 40,000 and Minimum Yearly premium of Rs 20,000.
- Risk cover of 5 times of the annualized premium or 1.25 times of single premium.
- In case of death during policy term, the plan returns basic sum assured plus fund value
- Extended risk cover for 2 years even after term end.
- Partial withdrawal allowed at any time after 3 years.
- Accident Benefit Raider (EDAB) allowed at a nominal charge of Rs 0.50 per 1000
Age Limit:
People in the age group of 10 to 65 years can avail this plan by paying a minimum premium as mentioned above. Maximum premium has no restrictions.
Risk Cover:
Policy holder’s risk is covered for a minimum of 1.25 times of the premium paid through single premium mode. The maximum risk cover under single premium for age less than 40 years is 5 times the premium, while the same is 2.5 times if age is below 50 and 1.25 times for ages above 50. Under the regular premium mode the minimum risk cover is 5 times and the maximum cover is 10 times the annual premium for ages below 50 years.
Returns:
This plan guarantees to pay the policy holder the higher of the highest NAV reached in the first 7 years of its term or the 8 th year NAV. But this guarantee of highest NAV can only be availed if the policy holder completes the term of the policy and of course, a charge is levied for this guarantee at the rate of 0.35% of the fund value.
The plan comes with an extended life cover for a period of 2 years after end of the term. You can surrender the plan even within three years, but the amount will be only paid after three years from date of the policy as per IRDA restrictions and there are no surrender charges.
As a maturity benefit policy holders are offered the highest NAV for units in the fund, provided the completion of a term of 8 years under the plan. Death benefit equals the sum assured plus the fund value during the term of the policy. For death during the first two years of the plan, and also after the term of the policy during the extended risk cover period the sum assured is only paid as the benefit.
Revival:
Instead of charging higher premium for risk cover based on age every year, This plan charges only a level premium based on age at entry. But in the case of revival of a lapsed policy, the age at date of revival is used to arrive at the risk cover premium. Revival can be done only within 2 years from date of lapse and Rs. 500 is charged for revival.
Partial Withdrawals:
The plan does provide a feature of partial withdrawals wherein, withdrawals can be after three years from commencement of plan and the maximum withdrawal is restricted to twice in a year. Other condition to be satisfied to make a partial withdrawals is that there should be a minimum of one annual premium left in the fund, and the minimum amount to be withdrawn must not be less than Rs.2000.
Loan Facility:
Loan is not granted in this plan as one can avail the same via partial withdrawals. The plan also does not provide for payments of top up premiums.
Charges:
* Allocation Charges:
Single Premium: 5% up to 4 lakhs and for above 4 lakh the charge is 4.5%.
Regular premium: 12% up to 2 lakhs on first year and thereafter 2.5% for remaining years of the policy term. For premium below 4 lakhs the charge is 11.75%, and 11.5% for less than 7 lakhs and above 7 lakhs, the charge would be 11.25%.
* Guarantee charges at the rate of 0.35% of the fund value.
* Fund management charges at the rate of 1% of the fund value.
* Policy administration charge at the rate of Rs 60 monthly for the first year. Rs. 25 for the second year, Thereafter escalates on Rs 25 at the inflating rate of 3% every year.
* An accident rider benefit is offered with this plan, by paying Rs.0.50 per thousand risk cover. But the accident raider can only be availed by individual’s within the age of 10 yrs to 62 yrs.
My Take on this policy:
There is nothing new offered by LIC through this wealth plus plan except an extended insurance cover for 2 years after the policy term. Though the charges look moderate when compared to similar plans in the market like SBI Life Smart ULIP or Bajaj Allianz Shield Plus, I am basically not in favor of combining insurance with investment. For reaping best benefits always separate out insurance and investment. To get a better idea of what that means, please do read through some of the articles on this blog related to investment. Having said that I request readers to compare and contrast similar ULIP plans wrt various features provided before deciding on buying a policy.
Koustav Bisws says
Dear Mohan
would you please give me some idea about sbi Magnum Equity Fund.would it be good option to invest in it or in lic wealth plan if i decide to invest Rs 2000/mth for next 3 yrs
Mohan says
Dear Koustav, going by performance in past few years SBI Magnum has been doing good. But again, I am no qualified financial advisor. I suggest you review your needs, term and then freeze up on a product. Simply don’t invest without knowing full details about whatever you are getting into.
Ramachandran N.S says
dear Koustav
If u go by illustrated benefit for age profile of 25 surrender value at the end of 7 years 84964 with a net yield of 7.29%.It doen’t factor the rider charges. Sum assured is taken as 100000 @ 2.5 times on an investment of 24000 for 3years.Brochure says it could be 10times. No clarity on this.
For any one above 50-55 you can have better options for the surrender value will be paltry 49000 at the end of 8 yeras on an investment of 40000.Even if you consider the life cover it is just 50000 @1.25 times.
Fine print tells the incidence of compulsory surrender if the surrender value is 50% of the assured premium.
Well the option is individual preference.
koustav biswas says
Dear Mohan
I’m totally new to this kind of investment.
i want a rough idea about the return at the end of the plan with rs 2000/mth investment in lic wealth plan deducting the service charges.
though it is related to market.i want the idea of the nav if it increase by 50% or so in the 7yrs.
Ramachandran N.S says
Dear Mohan,
I agree with your view investments and insurance can’t be good mix.Nice anlysis.Thanks a lot
Mohan says
Glad you understood the thoughts!
Anish K.S says
Its a good policy from LIC.
Mohan says
Hi Anish, would you mind sharing on what aspects it is a good policy?
Jayant Bhat says
written statement by Company would stand as evidence, agents confirmation has no validity. One simple test in which the agent will get caught in his own words:
Ask for an illustration. The illustration will have two possibilities: one. investment value and other charge details with 6% returns and the other with 10% returns.
Once he brings the above illustration for signing, ask him why this is not showing 15% returns as promised.
Anyways, your advisor is much better than the one i met. I met an advisor who explained to my friend that since LIC has govt backing, he will get 100% returns every year. That makes it 8x returns in 8 years.
Well, we cant change certain aspects of life like agents selling insurance. All we have to is read all articles and comments on Mohans Blog. Educate ourselves, Educate each other, Save money by comparing apple to apple i.e. all similar products of other companies. Tell your advisor to get proper insurance education coz gone are the days when people would digest anything and everything whatever they would say.
Praveen says
Ask him to give an written statement (a bond like thing) 🙂
hemal says
the lic agents claiming that if you invest say amount ‘A’ in wealth plus it will be 2xA (double) plus min. 15% profit on it. Is it true?
Mohan says
That is interesting now! Can you ask that agent of LIC Wealth plus official brochure or the LIC site showing up that 2x times of returns? I would be interested to see their reaction as well as the proof.
Smitha says
That is how the LIC agents mis-sell the product. Please be careful and don’t simply nod to everything they say. Always ask for written document where their claims/promises have been mentioned. Compared to other ULIPs in the market LIC Wealth Plus is still a good option I feel. What is your thought on this Mohan?
Mohan says
True. People have to be careful while dealing with agents. Always look at the official document on their site and only then convince yourself. Smitha, just that LIC Wealth plus is offering a little bit of extra comfort for the end user which has been much talked about in this review by readers as well. Yes, the advantage is very little 🙂
jayant bhat says
Rule no. 1 for ULIPs: Dont enter ULIPs with any great expectations. Esp, ULIPs with Guaranteed NAVs are definitely going to yield lesser as compared to normal ULIPs, but then the risk is also reduced in the former. Nobody can give you assurance of returns in ULIPs. All these guaranteed products can give assurances of only highest NAVs and not the amount. When your money is invested in money market by the company, the general returns are not more than 3.5% P.A, so the great returns are stunted. Instead in normal ULIPs you switched over from debt mkt to equity when mkts are going up and vice versa you can switch from equity to debt when mkts are falling.(note there are charges beyondcertain no of switches).if you dont want to get into headache of all this switching,just opt for balancer fund. Still you would get more returns than Guaranteed NAV products.
Rule no 2: Never forget Rule no. 1.
Jayanth says
Can you please tell me if i pay yearly premium of Rs. 25,000 for a period of 3 yrs in Wealth Plus policy how much amount will i get at the time of maturity of 8 yrs?
Jayant Bhat says
Thanks a lot for your kind words. However, I am curious to know where did you finally jump into:)).
Jokes apart, I want to know (for my own understanding) the specific reasons for opting only the following:
1. Products only from LIC and not from any of the 23 private insurance companies though they ve highly experienced partners with global presence, sufficient capital base as prescribed by IRDA and proven track record by the ones who have been in the market for around 9 years now.
2. FDs only from Scheduled Banks and Post Office and not from any RBI/Sebi approved private institutions.
Last but not the least, before you decided to invest money, have you thought on the following: 1. do you have sufficient life cover 2. do you have sufficient mediclaim over and above the one provided by your company if u r employed.
Hope you do not mind my queries. Your answers would help me grow my understanding of Human psyche of investment and ofcourse, thereby help my advisory business:)
Regards,
JAyant
Sujith Chacko says
Dear Jayant
Thanx a lot for u r reply, its really worthy for me.
After reading your comment, i decided to think twice before jumping into wealth plus.
Jayant Bhat says
Sir, Since you have almost decided what you want to do, I feel you should Scratch out third option. Opt between first two which gives you better results. Trust that you are aware that interest gained through FD’s are taxable beyond 10k accrued interest.
Since you are more inclined towards LIC, I would recommed market plus without cover. Invest 40k in mkt plus, 40k in FD and 10k in PPF. I am sure you would not mind withdrawing after 15 yrs as the amount is small but this combination would help you save tax liability created if 1 lac is invested in FD upfront.
Once you finalise on the investment option, opt for a term plan equivalent to around 15- 20 times your annual income. Would not prefer to recommend LIC’s term plan as it turns to be one of the costliest term plans in the industry but still term plan or life cover in any form is a must on the list for all.
Jayant Bhat says
slight correction : instead of Invest 40k in mkt plus, 40k in FD and 10k in PPF, read the following:Invest 40k in mkt plus, 40k in FD and 20k in PPF
Sujith Chacko says
Hi Dear Mohn
congrats for u r good effort, the article is really informative.
still i do have some doubts in my mind.
i wish to deposit a fair amount for a period not less than 5 years and not more than 10 years.
my options are
1)FD in a scheduled bank( am banking with Federal Bank)
2)Post Office deposit
3)LIC wealth plus (am not intrested with Birla,ICICI )
which one will give me more return
one more question is that
what will be the sum assuared if a am depositing 100000 as single premium, my age is less than 40years
hope someone can help me in this regard
tushar says
in case of partial withdrawn how highest NAv will be calculated in seventh year..
Mohan says
Tushar, that is not very clear to me at this point of time. Let me see if I can gather some answer to your question. Thanks for your question on Wealth Plus by LIC.
Senthil says
Hi Mohan,
Awesome review. I would like to hear your points on Max New York Life Insurance. Max new York has tie up with “Amway” & provides the insurance policy namely “Amsure”. Can you give your view points on this policy?
Mohan says
I haven’t looked at those plans yet Senthil. Sure, I will write about those plans upon going through the product details. Thanks for the info. Feel free to subscribe for an email notification to stay tuned with future articles on this blog.
jayant bhat says
BSLI’s Plat Plus IV offers two choices: Guaranteed option by using their own fund management or you can opt for self managed option. The initial charges are almost negative by the loyalty additions in case you remain active for 10 years and above. What I suggest is do an apple to apple comparision:
Take Illustrations of both companies with various fund options and various terms.
Observe the differences. What better than self study. Ask a lot of questions however silly they might appear to you prior to asking to your advisor. Opt for the one which satisfies your queries.
Vijaykumar says
Upfront LIC is taking atleast 6% on Fund administration charges etc. That I understand is that only balance 94% is available for investment in market. Over that investment NAV may get calculated and that too after setting off further investment expenses if any. The NAV calculation formula is not known. Dont know if there can be a double dip in the name of administration expense. After all these deductions, the returns , even if based on highest NAV is meaningless. LIC says, in otherwords, my returns first, and then your returns, based on a reduced networth ( called NAV ) subject to this and that condition. Happy ??
RAJAN GUPTA says
Hi Mohan,
Please suggest which ULIP plan shud i invest into : Birla Sunlife’s Platinum Plus IV or LIC’s recently launched Wealth Plus.
Regards,
RAJAN
Laxmikant R.Naik says
Dear sir
Is wealth plus policy is better than compared other policy for the period of short term?
Mohan says
Dear Laxmikant, the policy tenure for LIC Wealth plus is 8 years! Do you consider that a short term?
Rohini says
Excellent review Mohan! I was being pressured by an LIC agent repeatedly over a week now to make me buy this Wealth Plus ulip. Somehow I was not convinced and your article was very helpful to make up my mind now. You are doing a fantastic job with financial product reviews. Keep it up.
Mohan says
Thanks Rohini. Good to hear that this article was helpful to make up your mind. Thanks again!
Jayant Bhat says
Dear Mr. Manish,
For WEalth Plus:
Min Single Premium Sum Assured = 1.25 times the single premium.
Max Sum assured for entry age upto 40 years=5x the single premium.
Max Sum assured for entry age 41-50years=2.5x the single premium.
Max Sum assured for entry age > 51 years=1.25 the single premium.
Ideally Single premium wealth plus would tax benefits to those who fall in age less than 40 bracket. Look at other life insurance company single premium options where you can increase your cover.
Dear Mr. Solanki, While tax confirmations are a matter of tax consultants jurisdiction, I feel Single premium product may not help you to save much tax. Best alternative for you is to invest in some good mutual fund and wait for 365 days plus buy a simple term plan. Both investments will help you save tax as well as you can sleep and roam around stressfree not worrying(God Forbid) what will happen to your family if you dont return home due to untimely death.
Dont forget to invest in health insurance and participate in small bit of charities.
Manish says
Does Wealth Plus policy (single Premium) helps me to save Tax, I am informed that policy having sum assured greater than 5 times of annual premium qualify for income tax rebate. If such is the case sum assured for single premium is 1.25 times the annual premium
M.D. Solanki says
If an individual invested Rs. 1 Lac in singal premium. how much FMC & other charges ? Also, investor get what amount of tax benefit if annual income is less than 280000/-?
Mohan says
Dear Solanki, I have mentioned various charges in the article, pls calculate yourself! If you are planning to invest 1 Lac just for tax benefit, i am sure you have a bad tax planning. Please see my other articles on Tax Planning.
C.Bose says
You said nothing New in this plan – i would like to draw your attention to the following-
In Smart Ulip the NAV on 2 reset dates will be taken whereas in Wealth Plus, NAV is computed on a daily basis.
2. Extended protection for 2 years means a lot given the uncertainities of life.For 2 full years you carry a reserve equivalent to your Sum Assured in case of uncertainities.
3. LIC’s minimum premium is also low. Smart ULIP it is Rs. 50,000/- . In monthly ECS you pay as low as Rs.2000/-pm.
4. True enough a pure investment is no comparision for insurance as in investment you have to wait till the end of the term for the returns whereas in insurance-The moment you take a policy Reserve is immediately created for the Sum Assured.
Bye !
Jayant Bhat says
Computation dates do help, but in case of guaranteed NAV’s more money is kept in safe custody tools such as money market. Platinum Plus III had daily NAV calculation long time ago in Nov Dec 09. In fact, Birla have relaunched Platinum Plus premier wherein you have the option to choose Guaranteed NAV option or the self managed fund. I can opt for the Guaranteed fund option for first year, see the performance, then chose to move to self managed fund option to get more returns.
In Insurance a reserve is immediately created but even here in ULIPs you have to wait for minimum three years, check the fund value. Hence most of the financial planners would recommend ULIPs only after seeing adequate emergency funds in hands, decent life cover. Our job is ensure that ones family gets decent amount even after the death of the life assured who is dependent of the bread winner or the life assured.
Its all relative terminology as far as Investments are considered and it depends on the risk apetite and the mindset of people. I have few customers who just dont want to take any risk, dont to pay for term plan which does not give any return, just believe in seeing returns which are guaranteed in figures. And vice versa, there are few who just believe in taking risks without taking any life cover.
Vivek Shah says
I would like to invest Rs 50000 for growth of money without risk cover. Is it right thing to invest in Market Plus 1 without risk cover for 10 years. Is there any other way to invest amount like wealth plus , Jeevan nishchay. Which can give better return Wealth plus or Market Plus 1.
Mohan says
Both Wealth plus and Market Plus 1 returns are associated with market performance. Jeevan nischay is more like an FD with minimal insurance cover on all these products. If you are looking at pure investment purpose, best is to know your financial needs and plan accordingly.
Vivek Shah says
I am looking for atleast 10 years of investment. Becuase I have already invested in different product from short term to long term like NSC , KVP , PPF ,ICICI ULIP and 4 small polices from LIC. Now I am planning for growth becuase already my insurance is coverd including family.
Since this money was put into FD, I do not want to reinvest in FD becuase of the low interest percentage. So I am looking for other options to invest this Rs 50000. I found LIC ULIP plan can return good percentage. At the same time I am prepared to take little risk becuase this funds are related to Market which can deliver good returns also in long run.
I am also planning a SIP for 3 years with monthly Rs 1500. That is separate from this.
So in this regards I wanted to know where i should invest Rs 50000. Wealth plus or Market Plus 1.
Thanks,
Vivek
Vivek Shah says
I left to mention it is for Single premium only.
Thanks,
Vivek
Arun Kalluri says
Hi Mohan,
My brother wanted to buy NSCs for Income tax relief and suggestion to invest in this plan has come to us through a relative as my brother does not have a ULIP.
So do you suggest to go for this plan as the returns will be almost the same as investing in an FD.
Mohan says
Arun, I am not in favor of putting in this plan to save tax. Don’t do investments just to save tax. Please read through other articles on this blog to know why.
Krishnaraj says
Hi,
U hv told not to do investmets to save tax. But tax saving is a necessity. So pls give me a comparison between NSC, PPF, Wealth plus.
jayant bhat says
I think Mohan’s statement is misinterpreted. Actually, we must not invest in insurance only to save tax. You have to yourself do some analysis or seek professional help so that you dont get into the same mistake for coming number of years.
If you go through previous articles: then think about Life Cover first, then invest in Safe Investment which would help you in real long term,mid term and immediate. Do you have provision for emergency funds? this about all this. PPF is a safe and better choice for our retirement. ULIP comes next.You can opt for FDs with 5 year lockin too. Pvt companies recognised by RBI offer great returns too. depends on investors comfort level with them. Products with Guaranteed NAVs comes last in my personal book.
Anish K.S says
Me too a LIC Agent, thanks for the review.
Mohan says
Oh wait.. I am not an LIC Agent! You are most welcome 🙂
Sneha says
Hi Mohan, Good review on LIC Wealth Plus by providing both the advantages and disadvantages. Can you compare LIC wealth plus with ICICI Pru Ace and publish another article? I am confused between these two.
Mohan says
Thank you! Sure, it has been requested by a number of readers. Will dig out the comparison on these two soon.
Jayant Bhat says
Somehow, for me rankings are not exact indicator of future performance. One Classic example I would like to quote: Some time ago, SBI Magnum used to figure in the top 3 rankings, but now there is no place for SBI Magnum as such though it is performing quite well. My take on this is SBI Magnum was spearheaded by Sandip Sabarwal and the fund was in top charts till he was with SBI MF and then it started fading once he resigned.
A lot depends on the Fund Managers in addition to the schemes and company backing.
I have always gained a lot from Reliance Growth and SBI Magnum. One of my biggest mistakes of life: I over diversified into too many MF’s(more than 15) until it became difficult to keep a track of all funds.
Praveen says
Mohan, what do you feel about this article by ET? Top 10 Fund Houses for the quarter
Mohan says
Let me read through before I comment!
kishor wasu says
Dear Mohan u r biog is educative. I will be very much thankful to u if u share some major advantages and disadvantages of wealth plus of lic and similar plans of pvt insurers. Thank u.
Mohan says
Thank you. I think many readers of this blog as well as myself have given our thoughts on your question. Please read through the comments 🙂
Alok says
Thank Mohan for a nice platform for sharing the most sought after infom . Iwas looking for this kind of info for a long time. My insurance agent was pushing me for it from last 2 weeks. I was perplexed as to how LIC can give you the Gurantee for return and wonder where LIC would be investing the money. I got the idea now. Thank you again.
Mohan says
Glad this article was able to provide the answers you were looking for. Feel free to subscribe for email notifications if you liked the articles on this blog to stay informed about any such new articles here.
Reshma says
Nice review as usual Mohan. Thanks for all the details and your take. your articles are making me become a financially educated now 🙂
Mohan says
Glad you liked it. Of course… that is one of the goals 🙂 To share the collective knowledge and empower people to take decisions on their own.
shraddha says
awsome review…
i have passed you some linky love as you asked….enjoy…happy valentine’s day!!
Mohan says
Thanks Shraddha! I saw that 🙂
Laxmikant R.Naik says
Dear sir
Please confirm me if i pay yearly premium of 50,000.fifty thousand Rs, for period of 3 yrs in wealth plus policy.How much amount will i get at time of maturity of 8 yrs.
Mohan says
Dear Laxmikant, this is not a fixed return policy to calculate the maturity amount upfront. Since it is a Unit Linked plan, it will depend on lot of factors including the stock market performance. It is not possible to give an estimated number.
kishor wasu says
I think lic’s wealth plus is best amongs the all guarnteed nav plans.
As there are 3 major diff.as compared to same plan of pvt insurers
first one in death ,fund value plus sum assured will be paid.
secondly 2 years free risk cover after maturity.
thirdly when we are getting similar plan with 2-3 added features as compared to pvt insurers.
now a days services are much better though huge volume of business and services.
i will prefer lic’s wealth plus if i want invest in ulip
Mohan says
I agree with the first two, but not on the last option 🙂 The reason being the investment mode is just mentioned as money market, but not much details on the fund.
Harish Desai says
1. In Wealth Plus is NAV consideration on daily basis or particular days of the month.
2. What would be the allocation of funds in equity, debt and money markets. Is the allocation is more in debt and money market, the highest NAV is a marketing gimmick.
3. Can Proposer decide the allocation % in equity, debt and money markets. If not then this type of policies does not make any sense.
4. I have heard that in Birla’s Titanium Plus policy the Proposer can choose the allocation % after 3 years. If that is the case then that policy would be better than Wealth Plus because in the long period of 8 yrs equity is likely to give max returns.
Jayant Bhat says
Dear Sir,
NAV is relative to the premiums that we pay and the investment option that we choose. So NAV will go up if market goes up and vice versa. Ofcourse, guarantees are given based on some investment is done in debt market. Whatsoever be the reason, it will surpass FD’s or any such investment tool by atleast double depending on our investment option chosen in ULIP or MF. Whether it is birla sun life or LIC or for that any other company, all the charges are clearly mentioned in the illustration. If illustration is not read properly then policy document has got all the details. It is our problem if we ignore all the docs that we sign or receive. WE all have the option of free look period where you can cancel the policy without citing any reasons to the company in case you do not like the policy or incase the company or the advisor has given wrong info or guidance.
I always reiterate that nobody should sign the applicaiton form unless and until the investor is convinced thoroughly because at the end of the day, it is our hard earned money and only we should be the final authority to decide.
shashank kashettiwar says
What kind of returns one can expect in these max nav guaranteed kind of plans?
The returns can be calculated in two ways. One, return on the money invested i.e. the premium paid by us and secondly the returns can be calculated on the ‘fund’ or the ‘account value’. Even though we are ultimately interested in the first type of the return i.e. on the money invested, still we have to approach the answer to this from the second scenario only. Lets try to do this step by step.
There are broadly three parts of a insurance premium. The admin costs or the expense part (which includes the agent’s commission also); which we are not going to get back as the insurer has spent this money, second is the mortality charge ; this money is also not going to come our way if we outlive the policy because from this collective money of all the policyholders the insurer is going to pay the death benefit to the beneficiaries of the deceased persons, the third is the savings part which is invested/grown and paid back to us at the maturity of the plan. Now lets focus on this third part.
In a normal ULIP plan this money is invested in a combination of debt and equity instruments in the proportion of our choice by allowing us various choices of debt and equity exposure. The commensurate risk of the fund growth is borne by the policy holder, the insurer is the mere fund manager. If we consider that the equities give a long term return of @15-16% then we can say the return on debt type investments would be @8-9% again on a long term trend basis. (The returns on money market kind of funds should be considered slightly lower than this i.e.@6-7% as these are even more safer and short period type investments which are part of the debt market only).
In the guaranteed type of ULIP plans the insurer is not going to take much equity exposure. Whatever minor exposure they might take would possibly be taken in the initial period of the plan launch because they have enough period in their hands to rectify the matters in case the equity investment backfires on them. (That’s why in max nav type plans, the period of maturity is kept ahead of the premium payment period). So the very conservative nature of the investments would possibly fetch a return not more than or very slightly more than a debt fund i.e. in the range of @8-10% . But this would be the ‘fund’ return/yield not on our premium investments. Do we really wish to enter a ULIP for these type of returns? Definitely not. We wish to have the benefit and growth from the equity.(Rs 100 would take @5 yrs to double if grown by 15% and it would take @9 yrs to double if grown at @8%. So in 25 yrs time span Rs.100 would become not more than Rs.800 by 8% growth whereas become more than Rs3200 if grown by 15%). Investments in money market are going to impose further restrictions on the money growth as the lesser risk translates into even smaller overall returns. So in simple words guarantee of any kind of returns means sacrifice the possibility of potential high growth.
This gross return on the fund would be further pulled down by the expense and the mortality charges, as we talked about initially. Net returns on the premium i.e. the investment in practice could be in the range of 6.5-7% only. Doesn’t particularly excite me. If it is exciting for you , go ahead, the max nav plans are created for your types only.( But I can show you why even then you should not go for it! TO BE CONTINUED)
shiva says
I think u have not taken into consideration of paying highest NAV at the end of the term. It shows you have not properly go through this product. I request you instead of trying to get cheap publicity study the product and give constructive comments.
shiv
Mohan says
Shiva, I suggest you go through the comments here by various readers on how the highest NAV is a way to fool people. Read through and understand at your leisure 🙂
srinivasu says
dear all,
welcome !
thanks very much for this service.
in any above such guarantee N A V polices,remember..
1. only nav (highest) is payable, no such guarantee on the amount we pay as premiums.
2.no guarantee on fund performance.
3.high expences in shifting funds from equity to debt.
4. fund value=no. of units ^ nav
number of units are deducted towards various charges, so it effects the final maturity value.
you can always ask for a fact sheet of such polices, where all nav are below issue price.
5. stay away from birla sun life polices,hidden charges like policy admn. eat all your UNITS
thanks
satish says
I would like to appreciate your effort. I found this web page as part of questing “How it is possible to give max NAV?”. With this discussion I found some info.
Thanks to all the peers.
Mohan says
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Mohan says
That was a comprehensive information you have shared about the not so known truth behind ULIPs. Thanks Srinivasu.
satya says
dear sir
in all private insurance guarantee NAV plans, the highest NAV on any two set dates in a month only will be counted for the calculation.eg for SBI life the set dates are 8th and 23rd of every month( if it is holiday, the next working day)
but in LIC the highest NAV will be recorded throught the first seven years. one more point is that highest NAV will be paid only on maturity and not on surrenders, or death claim cases. For this all insurers or collecting guarantee charges but it is very very low in case of LIC. one more point in Wealth Plus by LIC is that the insurance coverage in this policy is equal to the total of sum assured plus fund value as on the date of death, where as in all private company policies it is either sum assured or fund value whichever is higher.one more addition is that in all guarantee NAV plans all the insurance companies including LIC the investment pattern will be decided by the insurer and not the customer.the customer has no option to choose the type of fund.
Mohan says
Ture, that is the advantage LIC Wealth Plus has in comparison with other ULIP plans from various companies like SBI, Bajaj-Allianz, etc.,
Shashank Kashettiwar says
The game in these kind of MAX Nav kind of plans is same across all the insurers.
This gimmick is used to sell the plan by making us feel that we are getting the NAV protection even in a very volatile market conditions in future.
Now, the keyword here is the ‘volatility’. We make a mental image of a wave pattern of NAV values which may move widely up and down. The insurance agent who comes to our doorstep to sell these products shows us a graph where the values are undulating widely and still we are promised the max nav, come what may, by the insurance company. How come an insurer, who by nature is the most conservative animal/investor has suddenly gone bonkers and started giving such rosy promises wherein they might have to suffer a huge loss possibly? And how come the regulator,IRDA,allowing such a wild party in the insurance field, the kind of which even SEBIs of this world would not allow entities like even the mutual funds, whose sole aim is to give maximum possible returns on moneys invested?
The answer lies in ‘volatility’ of the fund. In these max nav kind policies the debt-equity mix of the fund is totally decided by the fund manager/insurer. Now the risk -return profile of the fund is so created that the volatility and in turn the possible ‘returns’ are controlled very very tightly. The time span over which the money would come in is again restricted to just 3 yrs max whereas the maturity is kept much ahead to smoothen out volatility. The fund, portfolio management would be do done with many available techniques for portfolio insurance e.g. CPPI- constant proportion portfolio insurance. So the nav mountains which we are shown or which we imagine, are not more than hillocks
really!
For a sophisticated investor these type of plans are bad from the point of view of investment because of restrictive risk-return profile which cannot be chosen and very bad insurance plans as you end up getting a very low multiplier as the death benefit compared to a normal ULIP.
Mohan, for these type of plans atleast , I’m in total agreement with your view that, ONE SHOULD NOT MIX INSURANCE AND INVESTMENTS!
Mohan says
I am glad we have similar thoughts on these kind of plans atleast 🙂
Thanks for bringing in more clarity on these guaranteed NAV plans.
Chaitanya says
Thanks for the detail review .
Which funds are available for this plan.
Mohan says
All I know is that the money will be put into money market. Don’t have the fund details as such at this point of time. I shall update when I have more data.
jayant bhat says
I am in the process of gathering info on how all the Guarantees work in ULIP. I have already asked the query to two companies and I am yet to get any revert on the same. Well I believe it has a lot to do with the investment in Debt Market on few days in a month to safeguard against losses incurred. Tomorrow, I am getting the policy document from BSLI for their Platinum Plus. Let me see if I am able to resolve this one query which has been reeling my head since long time.
By the way, as far as payments are concerned, IRDA takes sufficient security deposit from the company both at the time of Co. formation and also in case of branch expansions. Also, the norms are quite tight and IRDA is on constant watchout in terms of audits etc.
Mohan says
That would be awesome. Look forward for a detailed info on that Jayant. I am sure, it will help a number of investors to understand the functional aspects of all these Guaranteed return plans.
Vedanta says
Thanks Mohan for this detailed analysis.
I would like to know the current NAV of this and what may be seven years down the line if market behaves moderately; though this question is totally relative and depends on market condition but your feedback will give me some idea in the direction of investment.
Thanks & Regard,
Ved.
Mohan says
Though it heavily depends on money market, to a large extent the onus is on the fund management as well. To get a better answer to your question, it is better to look at some of the money market related funds/policies floated by LIC. That will give a fair idea on how things can go towards the end of 8 years term 🙂
avneet says
Can someone tell me the exact allocation of the fund proceeds in money market?? the fund manager and his past records?? what nav one can expect if the bull run continues and in 7 years sensex does touch 21000 atleast once again??
Mohan says
Avneet, not sure if LIC will disclose that information, it is still awaited as we don’t have much clarity on that yet. Since it is a money market, anything is possible! More details to follow when I get more info.
C.Bose says
In this plan LIC has the freedom to invest in any amount of funds in any of Government Securities, Government guaranteed securities, Money market instruments or Equity shares.
2. The Portfolio may be available on LIC’s website.
Sathish K says
Hope it is not wise to buy a fund when where the investment is going is unknown.
Portfolio is not available on LIC’s website.
V.B.Bhosale says
Thanks Mohan for the detailed review.
What about Payment of Highest NAV at the end of term in case of Market goes down? Are these companies (with such a plans, icici life has pinacle with other two u have given and now LIC) rightoff loss in their accounts and make the payments to customers?
Currently almost all the private companies are in Loss, so in the scenario of Market going down at the time of maturity will they book loss?
your views ………..
Mohan says
You are most welcome! Well, that is the promise they are making to the policy buyers. So obviously, they would have got the approval nod for such policies from IRDA. Even if plans like this run into losses, there would be compensating policies to make up is what I feel.
More over, this policy in discussion comes with an option of highest of NAV over policy term. So, I feel customers will be benefited the most. May be other experts can comment on this to make us understand better.
pralhad says
sofar LIC not disclosed the fund allocation to various companies.If they allocated in secured investment or bonds then policyholder gets less attractive return
Mohan says
That is very true… Safe and High returns doesn’t go hand in hand 🙂
Pradip says
I think all Insurance Companies promising guaranteed NAV / highest NAV over a period of time will never make a loss because of a simple reason that they will follow the investment patter of a Secured Fund. So your investment is safe and you can expect a return of around 10% to 12% with risk cover, which is quiet good as compared to other safe investment instruments like Post & Bank FDs. For e.g, if you compare the NAV history of Bima Plus – Secured Fund, which was launched on 02-02-2001, exactly nine years ago, the highest NVA touched by this fund during the first seven years is Rs. 23.9652 on 06-01-2008. So, based on the performance of Bima Plus – Secured Fund, one can expect a return of Rs. 2.00 lacs to Rs. 2.15 lacs after eight years for someone investing Rs. 1.00 lacs now in Wealth Plus. In short, you can get double of what you invest now. This is for Single Premium option which is a best investment option for any income-tax group.
Neha says
Hi Pradip, You made sense. For the rest who are calling this a review its CCP technology from “http://www.licindia.in/wealth_plus_feature.html”.
Please men do know where to find info and expert advice. – Sorry Mohan
NOTE: ‘CCP’ is Cut-Copy-Paste
Mohan says
It is easy to make guesses than knowing the truth. When I published this article on the mentioned date, the wealth plus plan had not surfaced on LIC’s site. Appreciate you knowing the truth before making such alligator statements.
Sushant says
I would like to point out that LIC is not guaranteeing the highest return, it is just the “highest NAV”.
Secondly it is nowhere mentioning where the Fund manager going to invest..Equity or Debt. What is the fund allocation?
If its mostly Debt, then forget growth byong 15-20%, it would be 5-10%.
Thirdly there are certain policy charges that are not returned, so if the policy makes loss at the time of maturity, you may even get less than 100% of initial investment.
Divya says
For me atleast the name of LIC alone is good enough to buy this plan even though it is not much different from other insurance companies. Thanks for yet another detailed review Mohan.
Mohan says
Well, that used to be the talk of past. Now that IRDA has set strict guidelines… I don’t think anyone has fair advantage over the other. You are most welcome!
jayant bhat says
Nothing new. Typically launched to cater the needs of those who are looking for last minute tax saving options thereby increasing the business percentage share.
Mohan says
Right.. I felt the same too. Hope my take in the last para sums it up 🙂