ICICI Prudential ACE Review

Product highlights

·         A ULIP with a term ranging from 10 to 30 years for an individual between 0 to 65 years of age at entry; the maximum age at maturity is 75 years.

·         Trigger Portfolio Strategy: Option to choose a unique portfolio strategy to protect gains made in equity markets from any future equity market volatility

·         Loyalty Additions: At the end of every five policy years, starting from the 10th policy year, on payment of all premiums

·         100% allocation: At premium payment, in the asset class of your choice

·         Additional allocation of units: More than 100% allocation to funds on premium payment from the sixth policy year to the end of the policy term

·         Automatic Transfer Strategy: An option that helps you eliminate the need to time your investment

Charges you pay

·         Premium allocation charge

No premium allocation charge is deducted from your premium, except for the 1 per cent charge that is levied on the top-up premium.

·         Fund management charge (FMC)

FMC varies from 1 per cent to 1.25 per cent per year with a maximum cap of 1.35 per cent

Policy administration charge and mortality charge

Policy administration charges are fixed at RS. 60 per month. Mortality Charges are shown below.

·         Surrender and revival charge

Policy revival charge is Rs. 100, which can go up to Rs. 1,000 at the company’s discretion. A surrender charge will be applicable if the policy is returned in the first 3 policy years.

·         Other policy charges

Four fund switches in a year, One partial withdrawals every three years are allowed free. Policy alterations charges Rs 250 per alterations.

Incentives

1. Maturity benefit

• Fund value is paid at the time of maturity.

2. Death benefit

The nominee will receive higher of Fund Value or basic sum assured.

3. Loyalty Additions

At the end of every five policy years, starting from the 10th policy year, on payment of all premiums. This will be equal to 2.5% of the average of your policy fund value on the last day eight quarters preceding the allocation.

Amount Invested	Term	Age of Entry	Final Fund value at 10%	Gross Yield
Rs 25000 yearly	30 years	30yrs	Rs 35,50,568		8.94%
Rs 25000 yearly	20 years	40 yrs	Rs 13,40,795		8.87%

Recommendations

·         For whom – Conservative investors willing to put money for a longer period

·         Risk – High Risk; maturity benefits linked to market returns

·         Investment horizon – 10-30 years

·         Returns –High as charges are low

·         Beats inflation – Yes, it will be able to beat inflation at an assumed growth rate of 10 per cent

·         Tax bracket – Preferable for all tax brackets

·         Alternatives – Term plan with the return of premium option, PPF with term plan

ICICI Prudential PInnacle Review

Guaranteed return products are undoubtedly very popular among us Indians. We use at least one of these products, say, bank fixed deposits, NSC, KVP, PPF, REC Bonds, etc., to pick up a decent fixed return. For long, the market was dominated by the government-backed guaranteed return products, but now private players have entered the fray to give them a stiff competition. Sensing the money-making opportunity, private players have experimented with capital protection plans and market-linked guaranteed return plans. The latest offering is by ICICI Prudential which has introduced ICICI Pru Pinnacle, a guaranteed return unit-linked insurance plan (ULIP). But the question remains as whether this plan will succeed in attracting investors by offering something new or fall flat.

Highlights

On maturity, the plan offers the highest NAV recorded on daily basis in its first 7 years There is an additional 3 per cent maturity bonus on the completion of term Low charges make it a cost-effective guaranteed return plan

Background

ICICI Prudential, a joint venture between ICICI Bank and the UK-based Prudential Plc., was established in Dec. 2000. Over past nine years, it has built a strong distribution network of 2,074 branches (inclusive of 1,116 offices), over 2,25,000 advisors and 7 bancassurance partners. ICICI Prudential is the first life insurer in India to receive a National Insurer Financial Strength rating of AAA (Ind) from the credit rating agency, Fitch ratings. As of now, the company has a paid-up capital of Rs. 4,780 cr and the total Assets under Management (AUM) over $10 bn (Rs. 47,000 cr).

Product highlights

• ‘ICICI Prudential Pinnacle’ is an open-ended, unit-linked insurance policy with an advantage of varying exposure to equity with downside risk protected.
• Limited premium-paying term (3 years) providing extended insurance protection (10 years)
• An option to increase or decrease the sum assured anytime during the policy term
• The minimum and maximum age for entry is 8 years and 65 years, respectively.
• The policy is available for 10 years.
• The minimum single premium is Rs. 50,000 per annum, with no cap on maximum limit.
• Minimum sum assured is five times the annual premium.
• The policy can be surrendered after the 3^rd year, and there are no surrender charges after the 5^thyear.

Benefits of ICICI Pru Pinnacle

• ‘Guaranteed highest NAV’ as recorded on daily basis in the first seven years of the fund (from Oct. 24, 2009 to Oct. 24, 2016)

• An additional 3 per cent of fund value (prevailing NAV) received upon maturity
• Liquidity in terms of partial withdrawals allowed from the 6^th policy year
• In case of the unfortunate event of death of the insured, the nominee gets the higher of the fund value and sum assured (reduced by partial withdrawals, if any)
• 100 per cent surrender value after the 5^th policy year
• Tax benefits on the premium paid and benefits received under the policy as per the prevailing Income Tax laws.

Analysis

There are already a considerable number of guaranteed return products in the market such as SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus. All these plans have more or less the same features. However, they differ in charges like premium allocation charges, fund management charges, policy administration charges and others.

So where does ICICI Pru Pinnacle stand? This plan, too, is similar to the above-mentioned plans, but what sets it apart from them is its lower policy charges, recording of daily NAV and an additional maturity bonus of 3 per cent. The ICICI Pru Pinnacle fund guarantees the highest net asset value (NAV) recorded in its first seven years, subject to a minimum of Rs. 10. But there is a catch. This guaranteed highest NAV is applicable only at maturity. At maturity, the higher of Fund Value (units X NAV) and Guaranteed Value (units X guaranteed NAV) as on the maturity date shall be payable (refer Table 1).

As per the company’s benefit illustration, an annual premium of Rs. 3 lakh for three years for a 35-year-old healthy male with a sum assured of Rs. 15 lakh will grow to Rs. 11.63 lakh and Rs. 16.34 lakh at an interest rate of 6 per cent and 10 per cent, respectively.

Equating with other products

Here is the refrain, ‘Do not mix insurance with investment unless investment costs are very less and investment horizon is more than 20 years’. We are not comparing ICICI Pru Pinnacle with similar products like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, for they differ majorly in charges. Rather, we weigh it against a customised product – a combination of a mutual fund and a term insurance. Let us consider that the combo-product grows at the same 6 per cent and 10 per cent interest rate (refer Table 2).

In any circumstances, the combo-product of ELSS + term plan will outperform ICICI Pru Pinnacle by Rs. 1.11 lakh and Rs 1.45 lakh at a growth rate of 6 per cent and 10 per cent, respectively. Moreover, the death benefit in the MF investment will always be more than Rs. 15 lakh (Rs. 32.79 lakh at the 10th policy year). In terms of net returns also, the combo-product will yield 8.86 per cent and 4.43 per cent in comparison to 7.72 per cent and 3.25 per cent by ICICI Pru Pinnacle at a growth rate of 10 per cent and 6 per cent, respectively. Nevertheless, in ICICI Pru Pinnacle Fund maturity amount is guaranteed by its highest NAV recorded in the first seven years, but in ELSS maturity amount is applicable at the recorded NAV at the maturity date. So, in case the market tanks at the time of maturity, ELSS proceeds will go down, failing to provide the guaranteed return while ICICI Pru Pinnacle maturity proceeds are guaranteed at their highest NAV recorded.

Tax benefits

ICICI Prudential Pinnacle Fund provides tax benefits under Sec 80C of the Income Tax Act, where the premium paid is eligible for tax deductions up to Rs. 1 lakh. The maturity proceed is also exempt from tax under Section 10(10D).

Things to look into

• Top-up premiums are not allowed.

• Surrender benefit is limited to 30 per cent of the fund value within 3 years of policy term.

Recommendations

In India, products like ULIPs have become a push product rather than a pull product. By presenting delusive return charts to buyers and hiding the hefty charges applicable on ULIPs, insurance agents try to create a positive image for the product. ICICI Pru Pinnacle fund is no comparison to the combo-product of ELSS and term plan when it comes to tax saving and wealth creation, for the latter offers higher return. However, when compared with its peers like SBI Life’s Smart ULIP, Tata AIG’s Invest Assure and Birla Sunlife’s Platinum Plus, ICICI Pru Pinnacle Fund has an edge over the rest because of its lower policy charges and the unique feature of daily NAV, not applicable in Smart ULIP.

How to invest in the plan?

Investors can buy the plan directly from 2,074 branches (inclusive of 1,116 offices), over 225,000 advisors and 7 bancassurance partners of ICICI Prudential.

Summing it up

Innovation is the key to financial products. It is a known fact that most ULIPs face difficulty in offering guaranteed return as promised. Though fund managers try to invest as per the mood of investors based upon the economic scenario, they may not always succeed in generating desired return. ULIPs carry high risks as returns are linked directly to market performance, and thus insurers may not be able to honour their commitment of guaranteed NAV. However, the guaranteed maturity amount in ICICI Pru Pinnacle by its highest recorded NAV helps it score over a mutual fund whose returns are not guaranteed. So, it can be safely said that ICICI Pru Pinnacle is a good bet for the investors who have a low risk appetite.

Birla SunLife Dream Plan Review

Birla SunLife Dream Plan is a unit-linked insurance plan (ULIP) that provides the double benefit of higher sum assured and guaranteed maturity benefit at a cost lower than the traditional term plan. In addition, it does not carry any premium allocation charges (PAC), probably the only plan in the market with a no-load structure, albeit there is a 2 per cent PAC on top-up premium.

Product highlights

• A ULIP with a term ranging from 5 to 25 years for an individual between 18 to 60 years of age at entry; the maximum age at maturity is 75 years.
• Option to choose Guaranteed Maturity Benefit (GMB) with an upside potential based on the performance of funds chosen. This assures that you will receive no less than the GMB when the plan matures.

Highlights

This is a good alternative for a traditional term plan, and also carries features of a ULIP This is one of the cheapest ULIPs in the market Though it comes with lots of benefits, the charges are a little higher

• Option to choose Guaranteed Maturity Options (GMO), i.e., 100 per cent, 200 per cent and 300 per cent with three separate maturity amount payout schedules
• A minimum guaranteed return of 3 per cent p.a. on the premium paid less other charges
• Partial withdrawals allowed after 3 policy years; it does not affect the GMB.
• Policy surrender allowed after 3 policy years, with maximum payout up to the fund value at that time
• The cheapest ULIP product, with no premium allocation charges

Investment fund options

• The investor has an option to choose from three investment funds – Protector, Builder and Enhancer – as shown in Table 1.

The premium (minus charges) can be invested in any of the fund options or a combination of all three. The three funds follow a balanced approach to investment, and hence can be an ideal choice for investors with low to medium risk appetite.

Charges you pay

• Premium allocation charge

No premium allocation charge is deducted from your premium, except for the 2 per cent charge that is levied on the top-up premium.

• Fund management charge (FMC)

FMC varies from 1 per cent to 1.25 per cent per year with a maximum cap of 1.5 per cent (Table 1).

• Policy administration charge and mortality charge

Policy administration charges are on the higher side. For example, in case of a 20-year policy with a basic sum assured of Rs. 590, the charges will be Rs. 12.91 for the first three years and Rs. 13.23 for the remaining years, compared to the normal charge of Rs. 2 to Rs. 3. Mortality charge is also high as compared to other ULIP plans.

• Surrender and revival charge

Policy revival charge is Rs. 100, which can go up to Rs. 1,000 at the company’s discretion. A surrender charge will be applicable if the policy is returned in the first 3 policy years.

• Other policy charges

Two fund switches, two partial withdrawals and two premium redirections are allowed free per year at an additional cost of Rs. 100, with a maximum cap of Rs. 500 per additional request.

Incentives

1. Maturity benefit

• Guaranteed maturity amount depending upon GMO along with the fund value is paid at the time of maturity.

• A guaranteed return of 3 per cent per annum on net premium is applicable.

2. Death benefit

The nominee will receive basic sum assured, enhanced sum assured plus the higher of Fund Value and Guaranteed Fund Value.

3. The plan offers discounts at higher guaranteed maturity benefit amounts based on different bands.

Performance

Let us find out how this plan fares from its cost-benefit analysis, which is based on certain assumptions. For a 26-year-old male individual with the guaranteed maturity benefit (GMB) of Rs. 75,000, guaranteed maturity option of 300 per cent on GMB and enhanced sum assured of Rs. 50 lakh for a period of 25 years, the net return (gross of mortality charges) comes to 4.25 per cent and 8.24 per cent at an assumed growth rate of 6 per cent and 10 per cent, respectively. These returns are well above the minimum return prescribed by the regulator (i.e., 2.25 per cent for a policy with maturity period of more than 10 years). However, if we exclude the mortality charges, the net return will be negative.

• Table 2 sums up the performance of the three funds as on Sept. 30, 2009.

• In Enhancer fund, 28.44 per cent investment is made in equities. Out of this investment, 25.40 per cent, 13.21 per cent and 11.17 per cent go to banking, oil & gas and capital goods, respectively as the top 3 sectors.
• All three funds (Protector, Builder and Enhancer) have cash allocation, including money market instruments, in the ratio of 18.98 per cent to 11.20 per cent to 17.38 per cent, which may prove to be a boon for the funds in months to come as the market may see some correction in the near term.
• However, the average maturity of debt holdings is 5.14 to 6.72 years which can be fatal in the near term as the market can see unwinding of the monetary policies which will shoot up debt yields, leading to devaluation of the portfolio. Higher the interest rate, lower will be the average duration and debt value, and vice versa.

Equating with other products

A comparative analysis of BSLI Dream Plan with other investment products (Table 3) throws up some interesting facts.

• In case of Dream Plan, for a 30-year-old male individual opting for a GMB of Rs. 75,000 (100 per cent GMO) with an enhanced sum assurance of Rs. 50 lakh, the annual premium comes to Rs. 13,378 for 20 years with a maturity benefit of Rs. 1.82 lakh. The total premium paid in a span of 20 years exceeds the maturity benefit at both assumed interest level of 6 per cent and 10 per cent, thus, giving a net negative return. It happens because most of the premium amount goes in providing insurance cover of Rs 50 lakh. But if he invests in a combination product of PPF and a normal term plan for the same insurance cover of Rs. 50 lakh, his annual premium comes to Rs. 5,200 and the return is 3.39 per cent.
• In BSLI Premium Back Term Plan, the same benefits come at an annual premium of Rs. 42,422 with a maturity benefit of Rs. 8.4 lakh. But the net return is zero.

Tax benefits

• Premium payable under BSLI Dream Plan up to Rs. 1 lakh is eligible for tax benefits under Section 80C.
• Maturity or death proceeds are tax free under Sec 10(10D).

Things to look into

• The plan is preferably for an individual looking for an enhanced basic sum assured.
• The policy administration charge and mortality charge are exorbitantly high.
• Opting for riders will further reduce your return as units will be reduced in proportion to cover the monthly rider premium charge.

Recommendations

• For whom – Conservative investors willing to put money for a longer period
• Risk – Safe capital; maturity benefits linked to market returns
• Investment horizon – 5-25 years
• Returns – More in comparison to customised investment product providing same benefit
• Beats inflation – No, it won’t be able to beat inflation at an assumed growth rate of 6 per cent
• Tax bracket – Preferable for all tax brackets
• Alternatives – Term plan with the return of premium option, PPF with term plan

Summing it up

BSLI Dream Plan is ideal for those who are looking for an enhanced sum assured with moderate maturity benefits (in case of 100 per cent GMO). The other GMOs, i.e., 200 per cent and 300 per cent provide increased maturity benefits but come with high policy administration charges and mortality charges. In our opinion, the overheads are abrupt and the guaranteed 3 per cent return also does not look exciting enough. Moreover, investors can lose the trivial 3 per cent return if premiums are not paid in time.

LIC Jeevan Anand Review

Endowment plans were the darling of insurance companies, before ULIPs came into the picture. Over the years they might have lost their top slot but are not out of demand; conservative investors still prefer them for their survival benefits, which are missing in term plans. ‘LIC Jeevan Anand’ is one such popular endowment assurance plan which also comes with whole life benefits.

Product highlights/benefits

• An endowment assurance cum whole-life plan that provides survival benefits in the form of a lump sum at the end of term and also pays an additional sum assured to the nominee on the death of insured till the end of life
• In addition to sum assured, it pays simple reversionary bonuses and terminal bonus, if any

Highlights

It’s a unique endowment plan that offers whole life benefits at a little extra cost Whole life risk cover continues even after the premium paying term is over, till the death of the insured Double accident benefit is available during the premium paying term and thereafter up to age 70

• An additional accidental cover (up to Rs. 5 lakh) is paid as a lump sum on death due to accident, up to the age of 70. No additional premium required.
• Option to get extra protection at a very nominal cost
• Guaranteed surrender value up to 30 per cent of the total premium paid, excluding first-year premium and other riders’ premium after 3 policy years
• Policy available to people in the age group of 18-65 years. Premium paying term is 5-57 years.

Analysis

LIC Jeevan Anand provides the dual benefit of endowment and whole life plans, for a little extra premium. A 30-year-old individual will have to pay an annual premium of Rs. 20,978 for Rs. 5-lakh cover with a term of 25 years. Let’s see what benefits he will receive. LIC Jeevan Anand has a good bonus history since its inception in Feb. 2002. On an average, it has declared an annual bonus of Rs. 46.5 per thousand. For our calculation, we will take the average bonus at Rs. 45 per thousand (refer Table 1). Considering that LIC has distributed Final (Additional) Bonus (FAB) in its other schemes consistently, we assume an FAB of Rs. 550 per thousand in Jeevan Anand (in line with other schemes under similar conditions) at the end of term. As per Table 1, net return in this case comes to 6.60 per cent (approx.). Besides, the policyholder enjoys an accidental benefit of Rs. 5 lakh till the age of 70 and death benefit of Rs. 5 lakh (similar to the initial cover) till the end of his life. If we take into account these benefits, the return (gross of charges) will further increase for the policyholder.

Now take a look at Table 2. It presents endowment plans by other insurers. These plans are cheaper than LIC Jeevan Anand and have similar benefits. But they do not offer the whole life benefit. Moreover, the bonus rates announced in these products are not at par with LIC Jeevan Anand.

Thus, at the outset, LIC Jeevan Anand looks a little expensive than plain vanilla endowment plans but given the benefits in later years, the additional cost is justified.

Equating with other products

We always advise against mixing insurance with investment. As there are no similar products available in the market, we will compare LIC Jeevan Anand with a combination of a term plan and PPF (based on their benefits). But the term plan will provide cover till the age of 65 only, unlike in Jeevan Anand where whole life benefits continue till the end of the individual’s life. One can also combine a whole life policy with PPF. But again the policyholder will need to pay premium till the end of his/her life. This sets LIC Jeevan Anand apart from other non-ulip policies. Now, let us turn to Table 3 for a comparative analysis between Jeevan Anand and other asset classes. The term plan (SBI Life Shield) has been taken for an individual of 30 years for a period of 25 years for a sum of Rs. 5 lakh at an annual premium of Rs. 1,632. An additional accident cum disability benefit (Royal Sundaram Accident Shield) for Rs. 5 lakh has been taken at Rs. 589 per year. The remaining amount of Rs. 18,757 has been invested in other asset classes for a period of 25 years as mentioned in the table 3.

Tax benefits

• Premium paid up to Rs. 1 lakh is tax exempt under Section 80C.
• Maturity or death proceeds are tax free under Sec 10(10D).

Things to look into

• The additional whole life benefit comes at an inflated price (refer Table 2).
• Reversionary bonus, though announced regularly, is not guaranteed. Moreover, Final Additional Bonus (FAB) is also not guaranteed.

Recommendations

• For whom: Conservative investors willing to put money for a longer period
• Risk: Capital safe, but loyalty benefits are linked to performance of the company in future
• Investment horizon: 5-57 years
• Returns (post tax): Moderate in line with debt funds at different conditions. But unlike debt funds, it provides tax benefits under Sec 80C in addition.
• Beats inflation: No, it won’t be able to beat inflation even in case of a longer term
• Tax bracket: Preferable for all tax brackets
• Alternatives: Whole life plan, PPF plus term plan, mutual fund (through SIPs) plus term plan, etc.