More than lip service, finally

Recently, when I suggested a Ulip as an alternative to a term plan for life insurance, my client almost chocked with disbelief. He assumed that I was promoting a Ulip to earn some kind of returns from the company. Yes, given the negativity that has surrounded Ulips, at least from financial experts for some time, it was quite a valid thought. But then, Dream Plan from Birla Sun Life Insurance is a surprisingly different product.

For starters, the premium of this plan is close to and even lower, in some cases than a term plan. In term plans, there are no survival benefits for the insured at the end of the term. Yet, the Dream Plan gives a guaranteed sum of Rs 75,000, plus some non-guaranteed amount. In all, some premiums are paid back, unlike a term plan. This is interesting because the Ulip has been designed in a manner as to guarantee high sum assured amounts.

 

The main features of this plan include: 

 

 

Guaranteed maturity benefits

100 per cent premium allocation

Death benefit - sum assured (basic + enhanced) plus higher of the fund value or the guaranteed fund value is paid. Also, there is a guarantee of at least 3 per cent till the date on the invested amount

Enhanced sum assured benefit - This works like a term insurance rider. Only that there are no limitations of how much sum assured you could opt for

Charges:

There is no premium allocation charge and hence, the entire premium is invested

Fund management charge is 1 per cent a year for any fund chosen

Policy administration charge is deducted monthly by reducing units from the investment fund. There is a pre-defined schedule, for different bands and options

There are other charges like surrender charge, revival charge, rider premium charge and others

Mortality charge on the basic and enhanced sum assured

There are guaranteed options to receive the maturity amounts, designated as 100 per cent, 200 per cent and 300 per cent options. The minimum amounts that can be opted are Rs 75,000, Rs 37,500 and Rs 25,000, respectively. In all the three options, if the minimum amount is opted for, the amount receivable will be Rs 75,000.

Only in case of 200 per cent and 300 per cent options, the amount is receivable over a 5-year period. In that sense, the labels are misleading because the premiums are not different either. For instance, in case of a 35-year old, who is looking for a sum assured of Rs 50 lakh over a 15-year tenure and minimum guaranteed maturity amount, the premium works out to Rs 16,575 (100 per cent), Rs 16,400 (200 per cent) and Rs 16,279 (300 per cent) respectively a year.

It makes sense to choose the 100 per cent option as the non-guaranteed portion is paid along with the last instalment, making it a better idea. Even if the premiums are compared with a term plan, they are quite similar. Take LIC's Amulya Jeevan - The premium is Rs 14,700 a year for a 15-year term for a sum assured of Rs 50 lakh. ICICI Prudential's LifeGuard premium would come to Rs 14,588 for a similar product.
 

TABLE COMPARING DREAM PLAN WITH OTHERS
PREMIUM
	35	40	50
Dream Plan (Rs)	16,575	21,671	44,228
Life Guard (WROP) (Rs)	14,588	22,185	51,255
Amulya Jeevan (Rs)	14,700	20,350	45,350
RETURNS EXPECTED
Dream Plan (Rs)	136,046	142,337	169,818
Life Guard (WROP)	0	0	0
Amulya Jeevan	0	0	0
PERCENTAGE OF ALL PREMIUM BEING RETURNED IN DREAM PLAN
Amount got back in no of premium terms	8.21	6.57	3.84
Amount got back in percentage terms	54.72%	43.79%	25.60%

For a 50-year old, Dream Plan actually works out to be cheaper than others. For the same sum assured of Rs 50 lakh for 15 years, the premium of Amulya Jeevan would be Rs 45,350 and for LifeGaurd, it would be Rs 51,255. For Dream Plan, it is Rs 44,228.

In other words, this is a Ulip that almost sounds like a term plan, but is even better than one.

The writer is director, Ladder 7 Financal advisor