Tuesday, March 9, 2010

LIC Wealth Plus ULIP Review

LIC has launched a new plan called “Wealth Plus”, an unit linked insurance plan (ULIP) having a term of 8 years.

Our View :

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. 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.

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.

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.

* 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.

Our View :

Nothing New offered by LIC.

Our always view is keep your insurance and investment separate, which is always beneficial.

Gimmicks in the plan :

1. Highest Nav payable : This will push the fund to invest more in Debt funds, which will yield lower returns.

2. Debt portion protects your downside of portfolio as lower risk involved, but at the same time will not grow as much the equity portion grows.

3. Guaranteed return will push the portfolio again to a very tightly controlled, conservative stocks or rather money market instruments, which will not tend to lower returns compared to peers.

4. The insured amount on this is just Rs. 1-2 Lacs,

5. As investments ULIP products are not recommended.

Only positive side is , an extended insurance cover for 2 years after the policy term.

Charges look moderate when compared to similar plans in the market.


  1. I personally don't see any value in such kind of guaranteed product, because the day when you invest you end up loosing 20% of your invested amount.
    Lets take an example :
    If you invest Rs.10000/- in such guaranteed fund, after deducting charges ( approx 20%) your net investment is Rs.8000/-. Now just imagine the rate of return which market will have to deliver just to bring back your investment at par with your capital i.e. Rs.10000/-. It will have to deliver almost 25% return just to recover your capital and thereafter your investment will start showing profits.

    And if some one is looking such products from insurance point of view, then it's the worst product. Instead one should go in for a term insurance which offers maximum cover at very less premium. But now the investor will think that he will not get anything at the maturity of the term insurance. But now there are few products which gives atleast the premium paid on your insurance at the maturity.

  2. As per the guideline of IRDA any insurance company are not allowed to give guarantee above 3% p.a. Also these funds are close ended where you can't change any fund option. If you are bullish on equity you can't choose the fund which invest full amount in equity. No Mutual fund or Insurance company can deliver guaranteed returns by investing in equity. Few of the examples of how this funds are manage.

    1. Fund operate like Arbitrage fund - Here the average returns are 6-9 % p.a.

    2. Out of total fund 80% invested in 10 yrs. bond & rest 20% invested in equity or in derivatives. This is like structured product where again returns are 8-10% p.a.

    3. 100% fund can invested in equity but once they make loss of 10-20% from top NAV, fund manager will immediately transfer big size fund to debt & wait till the time they break top NAV.
    Expectation from this funds are 10-12 % p.a. over long term but these fund will highly under perform to well diversified equity fund.

  3. Yes totally agreeing to both of above comments.
    always better to stay away from ULIP products, which end up eating your own money.