Bajaj Allianz unit-linked Wealth Insurance Plan reviewed

Tuesday, April 5, 2011, 12:24 by Business Editor

The Wealth Insurance Plan from Bajaj Allianz, a joint venture between Bajaj Group and German insurance giant Allianz, is a single-premium ULIP

Consider this: you have recently reaped a bonus bonanza from your annual performance review. And if you happen to be of one of those guys who really don’t score high on the “discipline” front when it comes to prudently managing their finances, then parking this lump-sum figure in a long-term investment strategy could be a sensible option.

And what if we tell you that apart from using this money for investment, you can buy yourself a life insurance cover (thus protecting your family in case of your unfortunate death)! Yes, folks, single-premium unit-linked insurance policies might just be what the doctor ordered for you.

Combining risk cover with investment, these ULIPs invest the premium–net of applicable charges–into asset classes such as equity (stocks), debt (bonds) and cash market.

Unlike regular-premium ULIPs requiring the policy holder to pay premiums at regular intervals (e.g. yearly, monthly or quarterly), single-premium market-linked insurance policies save you the hassle of having to fret over due dates for premium contributions.

A few other attractions of a single-premium ULIP –

1.      Policyholders, who discontinue their renewal premium payments in regular-term policies in the first five years, cannot get back their investments before the 5-year lock-in period. While the lock-in period applies to single-premium policies as well, there is no likelihood of the funds getting locked in to a ‘Discontinuance Fund’ at a guarantee of at least 3.5%.

2.      The maximum commission for a single-premium policy is set at 2%, ensuring that you will be levied lower charges as compared to regular-premium ULIPs.

3.      As opposed to a regular-premium policy, single-premium ones do not impose a recurring policy administration charge over the long term.

Single-premium ULIPs should also be considered by those having an irregular income flow (such as contract workers, freelancers), as well as youngsters wary of long-term commitment. Middle-aged individuals, in their early forties, may also weigh these policies if they have a lump-sum figure to invest over a long term–seeking to gift their grand-children during important events.

The Wealth Insurance Plan from Bajaj Allianz, a joint venture between Bajaj Group and German insurance giant Allianz, is one such single-premium ULIP we will look at today.

Here are some of the key highlights of the Bajaj Allianz unit-linked Wealth Insurance Plan

1.      Single premium payment upfront (with an option to pay unlimited top-up premium, thus increasing risk protection)

2.      Whole life insurance policy (lapses at age of 75)

3.      Maturity Benefit – On the life assured turning 75 years old, he gets the single premium fund value and top-up premium fund value, if any, and the policy lapses. So it acts as a type of endowment plan, offering lump-sum amount on maturity, thereby ensuring a steady post-retirement income.

4.      A settlement option enables you to encash the maturity proceeds in installments/tranches, which will be paid out yearly, half yearly, quarterly or monthly as decided by you–over a maximum period of five years.

5.      Loyalty addition – Bajaj Allianz will allocate “loyalty units”, ranging from 3-7% of the single premium at the end of the fifth year of the plan, assuming the policy has not been terminated at the end of the 5th policy year.

Put simply, the insurer will add loyalty units–based on the then prevailing unit price–of a figure equivalent to 3% for single premium of Rs. 50,000 to Rs. 99,999; 5% for single premium of Rs. 1,00,000 to Rs. 2,49,999 and 7% for single premium of Rs. 2,50,000 and higher. Don’t expect any loyalty addition for top-up premiums.

6.      The ULIP gives one the flexibility to make partial withdrawals, thus providing a liquidity option for sudden requirement of cash.

7.      A Systematic switching option lets you switch between any of the 7 investment options (funds) that the policy invests in.

8.      Optional rider benefits such as riders of accidental death and disability benefit allow you to increase your risk protection cover, subject to the payment of extra charges.

9.      The plan allocates 98% of the Single premium (and the Top-up Premium, if any) towards investment funds, thus providing a high allocation ratio to deliver potentially higher returns

Let’s then examine the various aspects of the Bajaj Allianz Wealth Insurance Plan in detail.

Basic facts –

i.                    Minimum Entry Age – 7 years (18 years for all Additional Rider Benefits)

ii.                  Maximum Entry Age – 65 years (50 years in case of all Additional Rider Benefits)

iii.                Minimum Maturity Age – Whole Life Plan. The ULIP will lapse on the life assured turning 75.

iv.                Additional Rider Benefit Ceasing Age – 65 years for all riders

v.                  Minimum Single Premium – Rs. 25,000 (for 7-60 years Entry Age); Rs. 50,000 (for 61-65years Entry Age)

vi.                Maximum Single Premium - Rs. 3,30,000

vii.              Minimum Top-up Premium – Rs. 5,000

viii.            Minimum Sum Assured – 1.25 times Single Premium (for 7-44 years Entry Age); 1.1 times Single Premium (for 45-65 years Entry Age)

ix.                Maximum Sum Assured – 5 times the Single Premium amount

Investment options (Funds)

This unit-linked policy gives you the following array of 7 investment options (funds), each having a varied proportion of equity and debt, for you to choose from (based on your risk appetite and expectations of returns) –

Fund name Asset classes invested in (as a % of overall fund portfolio)
Bank Deposits & Money Market Instruments Equities Government Securitiess, Bonds, Fixed Deposits
Pure Stock Fund (shuns unethical sectors like gambling) 0-40% 60-100%
Equity Index Fund II (invests in NSE NIFTY-listed stocks, seeking to replicate returns registered by the benchmark index) 0-40% 60-100%
Equity Growth Fund II (investment in specific equity stocks having high growth potential) 0-40% 60-100%
Bond Fund (invests in high-quality fixed income securities) 0-100% 0-100%
Liquid Fund (invests in liquid money market and short-term instruments) 0-100%
Accelerator Mid-Cap Fund II (invests in a diversified pool of mid-cap and large-cap stocks, with at least 50% of equities exposure to mid-cap companies) 0-40% 60-100%
Asset Allocation Fund (allocates assets across equities, bonds and cash to build a balanced portfolio) 0-100% 0-100% 0-100%

Test case for investment returns –

Age – 40 Years; Policy term – 35 years; Single Premium – Rs. 25,000; Sum Assured – Rs. 31,250 (1.25 times the Single Premium)

Fund name Fund track record (rate of returns delivered till date from inception) Projected Maturity Benefit (based on fund track record till date; no guarantee, however) (in Rs.)
Pure Stock Fund 23.24% 2,49,60832
Equity Index Fund II 16.4% 39,99,005
Equity Growth Fund II 14.41% 21,17,781
Bond Fund 10.57% 6,33,998
Liquid Fund 10.02% 5,27,111
Accelerator Mid-Cap Fund II 9.1% 3,61,378
Asset Allocation Fund 8.86% 3,37,840

Premium Apportionment – One has the option of deciding to invest entirely in any one fund or distribute his single premium across the various funds in a ratio that he deems fit. Note that the minimum premium apportionment to any of the seven funds must be 5%.

Switching Option

1.      The policy owner can switch units from one fund to another by notifying the company

2.      The insured person will be charged Rs. 5,000 or the fund value, whichever is lower, as the minimum switching amount.

Partial withdrawals

The policy holder is entitled to making any number of partial withdrawals he wants, anytime after the fifth policy year–conditional upon several factors, a few of which are shortlisted below:

1.      He should withdraw at least Rs. 5,000 on account of partial redemption.

2.      A minimum balance of Rs. 5,000 or 1/5th of the single premium, whichever is higher across all funds, has to be maintained following a partial withdrawal.

Surrender Benefit

One has the option of forfeiting/surrendering his policy anytime from the sixth policy year onwards. On exercising this option, he will get a Surrender Value equal to the fund value as on date of surrender of the ULIP, with the policy ceasing to exist with immediate effect.

Foreclosure

If, at any time after the fifth policy year, the policy holder’s single premium fund value becomes inadequate to subtract any of the relevant charges, then the remaining fund value as on date of such insufficiency shall be paid to him immediately and the policy will lapse.

Tax Benefits of Bajaja Allianz single premium unit linked Wealth Insurance Policy

Premiums paid towards the Bajaj Allianz Wealth Insurance Plan are eligible for tax benefits under section 80C. On the other hand, you can claim tax relief for maturity benefit, death benefit and surrender value under section 10(10)D of the Income Tax Act.

Policy termination

The policy shall automatically become void on the earlier occurrence of either of the following events:

1.      The life assured dies

2.      Maturity proceeds are paid out

3.      Foreclosure of the policy occurs

4.      The units in the policy are fully surrendered

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