LIC has launched another ULIP called Jeevan Samridhi Plus. In India, the highest selling financial products seem to be those that combine insurance and investment. Even when Financial Planners are rationally arguing to keep insurance and investments separate.
The reason is very simple. Insurance is not bought, it’s sold by Agents. And when they have the incentive to sell a product which combines insurance and investment, it’s easier for them. And we have around 3 million insurance agents pushing such products.
Moreover, people are not aware of the costs and the implications. Just look at NPS and it’s extraordinary low costs, and no one is buying!
Coming back to the Samridhi Plus review, check out the details on LIC’s website. This new ULIP from LIC comes at perhaps the lowest premium allocation charge of just 6% in the first year. However it continues upto the 5th year @ 4.5%, while earlier ULIPs, the charges dropped radically after the first year.
LIC’s Samridhi Plus is a unit linked plan that safeguards your investment from market fluctuations, so that your investments are protected in financially volatile times. This plan offers payment of Fund Value at the end of policy term, based on highest Net Asset Value (NAV) over the first 100 months of the policy, or the NAV as applicable on the date of maturity, whichever is higher.
LIC’s website has some benefit illustrations prescribed by the IRDA @ 6% and 10%. As per LIC’s site, the yield (IRR) for the 6% calculation comes to 3.92% while the 10% assumption gives areturn of 7.90%.
This 6% and 10% prescription by IRDA is puzzling. While it is known that the yield of Insurers hover between 6-10%, the returns on stock market investments can be very volatile. Why apply the prescription for ULIPs really baffles me.
Moreover, this one rule for all, can mislead. For example, the NAV of Pension Plus launched last year (Feb, 2010) by LIC is 9.9751 (Mixed Fund, effecctive dt 4/3/11) and 10.1964 (Debt Fund, dt 4/3/11). Remember, you received units only after deduction of charges and so you did not get units for all your money invested.
For example, if you invested Rs 10000/- with a premium allocation/other charges of 20%, you got units for Rs 8000/- only. If the opening NAV is Rs 10, you get 800 units. After 1 year, if the NAV is 10.1964, the value of your investment is 800×10.1964 = 8157 only.
ULIPs as a concept of combining insurance, investments and even tax planning sounds good. Add to it the convenience of dealing with a ubiquitous insurance agent (Each one of us have some relative as an agent, no?), ULIP has become a hot selling financial product.
But it’s worthwhile to take a deeper look at the product and then decide for yourself. To me, it’s uncomfortable riding two-three boats at the same time.
We know the cost of falling off, No?
Cross posted on Personal Finance Online Resources