iMaximize: ULIP for Online Buyers with No Allocation Charge

Posted on August 30, 2011 by Ranjan

ULIPs (Unit Linked Insurance Plan), though conceptually a good financial product which covers both insurance and investment needs, have earned bad publicity due to their heavy front loaded charges. Life Insurers have charged very heavy premium allocation charges initially. And when some Insurers advertised zero premium allocation charge, they tricked the investors by charging a heavy administration charge and not disclosed properly. Relevant posts Link, Mis-selling ULIPs

However AEGON Religare iMaximize Plan offers to maximize your investment by charging you zero premium allocation charge. And the policy administration charge, though a tad high at Rs 100/- per month is reasonable. And if you are net savvy, you can avoid the trouble of going through agents and get yourself insured directly, through their direct sales channels. The experiences of buying from Aegon Religare has been good and it is not only simple but also available at your finger tips.

We had the opportunity to ask Mr. Yateesh Srivastava, Chief Marketing Officer, ARLI a few questions about their online channel and here are his responses. Mr. Srivastava has 21 years of work experience spanning general management, marketing research, advertising, online and digital publishing and marketing financial services. He handles the areas of branding & communication, corporate communications and customer engagement at AEGON Religare Life Insurance.

Question 1: ARLI is betting big on the online space and has the first mover advantage. How has been the mortality experience of this class of online buyers? Is it better than the mass mortality experience?

YS: Overall while it is too early to make a definitive comment, as the numbers of claims are few it, prima facie, does appear that the mortality experience on the online portfolio is better than that of the offline portfolio.

2. Do you give discounts on the mortality table for online buyers since they are better informed, educated, tech savvy and have better income?

YS: Yes and this has been built into the pricing. The iTerm mortality table for online buyers has also been applied to online buyers for the iMaximize Plan.

3. Can we quantify the savings on the distribution expenses because of online buying?

YS: Distribution expenses are quantifiable, as they consist of fixed expenses operational plus commissions. Taking out the marginal operating and marketing expenses, these savings are passed on to the customer to create a differential price advantage.

4. The claim performance was initially a put off. What is being done to streamline the claims process?

YS: I understand your concern. However it is important to understand that new life insurance companies have to investigate early stage claims. A number of cases that have been repudiated, have been found to be fraudulent and some others have been rejected, as they were claims made in the exclusion period. To back this fact up, I would like to state that none of our claim decisions have been overturned by any competent regulatory authority. The claim experience in the online space is an 80% payout. The company is tackling the issues of claims proactively by educating customers about disclosures etc.

5. Can there be a special assurance from the management for our readers in case of any problems in buying and servicing their ARLI policies?

YS: A special assurance is required in case of major problems in buying and servicing of policies. This is not something that we have experienced. We have a regular complaints and grievance redressal process and in the case of the online space we probably provide the highest level of service to our customers. This is borne out by lack of complaints and high persistency in this portfolio.

The Features of the iMaximize plan

Any experiences of buying this product? And what’s your take on combining insurance and investment?

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LIC’s Samridhi Plus

Posted on March 7, 2011 by Ranjan

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

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Pay Rs 2.5 Lakh, Get Back Rs 80K

Posted on March 4, 2011 by Ranjan

I am sharing an anguished letter that explains how you can shave off 75% of your investments by giving in to pushy ULIP sellers! The idea of sharing the letter is that you don’t commit the same mistakes.

We all encounter pushy Agents who are hardselling their products. Many of us lack the courage of saying “No”. It’s because we don’t give attention to buying financial products.

The cost of not doing enough research and believing the pushy agent is huge. Read the following letter where the person invested Rs 2.5 lakh and got back Rs 80 thousand after a few years!

The sad news is that nothing much can be done about it as the Insurer has the right to charge surrender and other charges and which is documented in the policy papers that the he customer recieved. The customer may well have blindly signed the benefit illustration document that shows all the charges!

It’s difficult to prove mis-selling and going to IRDA/Insurance Ombudsman wouldn’t really help.

Here’s the letter, below the fold

Hello sir/madam,

I write this mail to you with utter disappointment and anguish.

My father-in-law parked his entire savings in a Bajaj Allianz scheme called Unit Gain Gold Plus. When the consultant visited him to campaign for the policy, he highlighted all the features and got him to sign for a premium of Rs. 2.5 lacs a year.

What he failed to tell him was the surrender value. The agent smartly hid the fact and took the insurance coverage. The policy requires mandatory payment for three years, lest it would attract surrender value.

After the first year, my father in law could not continue to pay the insurance premiums, the sums being very heavy. I now receive a letter of cessation of policy from the company with a cheque for Rs. 80,000.

This has incurred us a heavy loss, and my father in law is unable to recover from that. Please let me know of ways to salvage the money. Again I impress upon the fact that the the agent sold the insurance without highlighting the risks.

We would be grateful for any advice on this.

Thanks, Gayathri

Can you help Gayathri? Atleast help yourself by not repeating the mistake!

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ULIPs: Between The Devil & Deep Sea?

Posted on December 29, 2010 by Ranjan

The new ULIPs are far better for the customers especially when you have a long term view while getting into a ULIP contract. But what if you have bought the old ULIP with it’s high cost structure and want to come out of it?

My off-the-cuff reaction is to stay put as over a long term, the cost structure should come down, and you enjoy the benefits in the later years. But here’s a mail from Sriram that needs a detailed review.

I read your columns very often and find it very informative and practical.

Wanted a small piece of advise from you. I had started a ULIP plan with ICICI Prudential in 2007 (Lifetime super) where I paid an yearly premium of INR 60,000. Being not-so-financially-literate at that point of time, I opted for a plan which gave me a cover of only INR 3,00,000. I realised that this policy is neither helping me get a decent insurance cover nor allowing me the flexibility of investing allowed in mutual funds etc.

I therefore decided to not continue with payment of the premiums after the mandatory 3 years and instead allowed the amount to remain as a investment which will give me returns (just like a MF). I plan to take a seperate plain-vanilla Term Insurance plan and invest any surpluses in MFs.

My problem is this:
1. I can ‘foreclose’ my policy now where I will get the fund value of my investment (roughly amounting to INR 2,00,000 as on date) OR
2. Opt for a Cover continuance Option (where My investment will continue to earn returns)

In case 1, I understand the entire INR 2 lakhs will be taxed as ‘income’ (in my case at 30%). This will give me a net negative return and
In case 2, I will be charged an yearly fee of 4% for fund management. This is also not a good option for me since the only objective of retaining the funds in the policy is not for insurance but purely as an investment.

I called the customer service of ICICI Prudential twice to check this
particular point. They said it would be taxed but did not appear confident.

Please advise me on how I can close my investment in the most efficient way.

My response to his mail was that if you terminate the contract of insurance , your 80C deductions claimed in the past years is taxed as Income from other sources. However I don’t think the entire Rs 2 lacs will be added as income from other sources as payouts from insurance companies are exempt under sec 10 (10 D).

There would not be any capital gains anyway. Even though your investment of Rs 1.80 lacs has grown to Rs 2 lacs in three years, the indexation effect should take care of that increase. In fact the loss may well be set off!

Are there any tax experts that can corroborate this? I have a feeling that interpretations by ITOs will be inconsistent from officer to officer as some of them might equate ULIPs with Mutual Funds.

I need to check the 4% fund management charges that Sriram talks about. I guess he’s including the premium allocation charges and policy admin charges too. In any case, it seems too much.

Another takeaway from Sriram’s email is the information level of ICICI’s customer service.

Any such experiences? Any tax expert who can throw light on the tax treatment of ULIP surrenders?

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The New ULIPs in Town

Posted on December 18, 2010 by Ranjan

After September 1, 2010, the Life Insurance companies had to come out with new ULIPs where they had to significantly curtail down the charges. This is because as per the IRDA, the difference between the gross yield (actual return earned by the fund) and the net yield (yield after deducting the actual expenses incurred by the fund) should not be more than 3 per cent in case of products with a tenure of less than 10 years and 2.25 per cent in case of products over 10 years. More details

I wanted to cross check the charges of different Insurers and it wasn’t easy finding the same on their websites. Here’s what I found after trawling the web for an hour.

Before you jump to any conclusions, I don’t think the charges are the only factor to decide in favour or against the ULIPs. I think the most important factor is the professional expertise of your agent.The trust factor is an over-rated one, I think.

Insurance Company/Product	Allocation Charges	Fund Management Charges
LIC/Endowment Plus	7.5% + policy admn of Rs 50 pm	0.80%
SBI Life ULIP Super	9% + policy admn of Rs 50 pm	1.35%
Max NewYork Life	5% + 4% annual premium	1.25%
ICICI Pru	2% + .47×12 (policy admn)= 7.64%	1.35%
Bajaj Allianz	10% + 2% annual premium	1.35%

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Implications of the Proposed DTC on ELSS & ULIPS

Posted on June 19, 2010 by Ranjan

The revised discussion paper on DTC, has an effect of loss of tax immunity on the popular Equity Linked Savings Scheme (ELSS) and ULIPs.

Presently, the revised discussion paper, has mentioned only the following six schemes will be tax-free, thus enjoying the EEE status:
• Government Provident Fund (GPF)
• Public Provident Fund (PPF)
• Recognised Provident Funds (RPFs)
• New Pension Scheme (NPS) (administered by PFRDA)
• Approved pure life insurance products
• Annuity schemes

And the objective of doing so is to encourage taxpayers to invest in long-term savings schemes. The revised discussion paper has also said that the rules for contribution and withdrawal will be harmonised and made uniform so that savings are made by the taxpayer for the long term.

“ULIPs will be out of the Exempt, Exempt, Exempt (EEE) tax regime,” said a senior finance ministry official, referring to the different stages at which financial instruments may be taxed.

At present, like all insurance products, the returns earned by ULIPs are free of income tax. However, the returns from the investment part of these products is also tax-free simply because these products come in the garb of insurance.

I have read opinions in the media that the tax incentives of the ULIPs/ELSS should continue because they are popular and contribute to the infrastructure projects.

I don’t think it’s a valid argument in favour of giving tax incentives to these products. Because we have excellent products that give you enough tax incentives like the NPS and the PF. They need to be popularized in the interest of the ordinary investor.

What do you think? Should the tax incentive for the ULIPs and ELSS continue?

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Benefits of Buying Insurance Online

Posted on May 31, 2010 by Ranjan

The Hindu Business Line has a report on “Why you should buy insurance online“.

Excerpts:
An array of insurance products in the life and general insurance spaces are issued online. Agent commission, which is a significant proportion of the cost associated with an insurance product, is not charged while buying policies online but is passed on as a discount to the buyers.

Buying life insurance and ULIPs online is typically much cheaper than the offline versions.

For instance, HDFC Standard’s Endowment Super Suvidha (Spl), a unit-linked insurance product, promises 40 per cent lower cost on online purchase.

For a Rs 50 lakh policy for a 30-year male over a 25-year term, Aegon Religare’s online iTerm policy charges a yearly premium of Rs 5,600. The same product when bought offline with Aegon Religare would have a yearly premium of Rs 11,360.

In ICICI Pru’s ULIP (ICICI Pru ACE), the premium allocation charges are nil; in HDFC Standard Life’s ULIP, premium allocation charges are 10 per cent and 5 per cent of the premium paid in the first and second year as against the 15 per cent and 10 per cent for the offline versions.

Buying online has it’s benefits, of course. Like the cost advantage. But how many of us have taken advantage of this online buying option?

Do you have an online buying experience? And do you think buying it cheap is more important than having a professional advisor helping you with the decision? And do you think, buying the cheapest policy makes sense?

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