Yesterday, I posted all the details of IDBI federal Wealthassurance Milestone ULIP plan. Well, that was all officially about that plan from the official website of the company. Today, I'll explore more into this plan & will digg out the real things.
This is a simple ULIP plan. You pay the premium, select the S.A. and the funds where you want to invest and that's it. The company will deduct some charges from the premium before investing and some charges after investing. Let's explore these charges in detail.
I'm assuming a case of a health person of age 35 years, who wants to invest Rs.40,000 p.a. for a period of 20 years. We all know ULIP is a long-term product and we should not look profit or charges just for short term.
1. Premium Allocation charges (PAC) (mentioned on page 6 of brochure): For a premium of Rs.40,000 p.a., the PAC will be 9.45% in 1st year, 6.30% in 2nd to 5th year and 4.90% thereafter every year. So, in 20 years, it comes out to be Rs.43,260. Isn't more than one whole annual premium?
2. Policy Admin Charges: There are no policy admin charges during the premium payment term. After the completion of premium payment term the policy administration charge is 1.75% of the initial annual premium per annum.
3. Fund Management Charges: It will be 1.35% p.a. from the total fund value.
4. Mortality Charges: These charges are deducted for providing insurance to you. So, the charges depend upon your S.A. and age.
Service tax + cess will be extra on fund management & mortality charges. As per latest union budget 2011, service tax may be levied on ALL the charges of ULIP including premium allocation charges; although industry is waiting for more clarification on this.
The product also allows top-up also where it charges 5.5% of top-up amount (3.30% as premium allocation charges + 2.2% as policy admin charges). This is on higher side as other companies charges top-up charges ranges from 1%-2%.
One must use top-up feature when you see correction in stock market. This top-up allows you additional investment and get average rate of your units.
So, shall you invest after seeing all the charges of this plan in detail. Whatever debate and announcements we listen from IRDA and insurance companies about the "new and investor friendly guidelines" or "naya wala ULIP", the companies manage to implement charges in beautiful manner. With total of 108.15% of premium amount in 20 years as premium allocation charges and 5.5% on top-up amount, this product has lost its shine.
So, the solution is, you can invest in equity diversified mutual funds and for risk-cover, take term insurance. A penny saved is a penny earned.
and who should take such ULIP then? The answer is – ULIP is for those investors, who can professionally make use shifting of units from debt to equity and vice-versa. And if you're such a investor who will stop your investments in mutual funds when market corrects and may also withdraw your money, you should invest in ULIP without any second thought.