LIC Endowment Plus ULIP review

Tuesday, April 5, 2011, 9:25 by Business Editor

A risk plus investment ULIP from LIC India

If you run through the various ULIP through our website, one thing that might catch your eye is that risk cover—payout in case of untimely death—is minimal. So in a sense, most ULIPs are really for investments rather than insurance.

The coverage has gone up since IRDA’s—the insurance regulators—new rules have made risk cover mandatory in 2010 and set a minimum limit. Still you’d be hard-pressed to find a plan that offers risk cover greater than 10 times the single premium amount.

But there are exceptions. One such ULIP launched after the enactment of the new set of rules for the industry was the Life Insurance Corporation’s ‘Endowment Plus’ plan.

The standout feature of this policy is the impressive Sum Assured benefit–(Policy Term +1) times the total premium per annum–if you go in for a regular-premium mode. Also read about ICICI Prudential Pinnacle II ULIP policy

So, for example, if a 30-year-old guy pays Rs. 20,000 annually for a policy term of 15 years, then his minimum Sum Assured turn out to be (15+1) times Rs. 20,000, i.e. Rs. 3.2 lakh–which is easily among the highest life covers one will get in a ULIP.

Apart from providing a cover against mortality risk (read, death), this scheme–via its set of four investment funds–allows you to invest your money in various market-related securities such as stocks, bonds, etc.

Once you decide on the type of investment funds (more on that a bit later), LIC will invest your premiums–net of applicable charges–into that Fund, by buying so-called “Units” of that Fund. These Units will be allotted based on the Net Asset Value of the given fund as on the date of allotment. Note that the NAV is dynamic, and varies according to the fund’s investment performance.

So when the policy term ends, you get the corpus amount, or the Fund Value, at maturity–based on the NAV on the date of maturity, multiplied by the total number of units allotted to you.

In other words, the LIC ‘Endowment Plus’ is a ‘risk + investment’ policy.

Here are some basic details of the plan –

Policy at a glance Regular-premium pay Single-premium pay
Premium payment frequency Annual, half-yearly, quarterly or monthly Only when buying the policy
Entry Age (minimum – maximum) 7-60 years
Maturity Age (minimum – maximum) 18-70 years
Policy Term 10-20 years
Minimum Premium (in Rs.) 20,000 per annum for non-monthly mode 1,750 per month for monthly mode 30,000
Maximum Premium (in Rs.) 1,00,000 per annum No limit
Minimum Sum Assured (in Rs.) (Policy Term +1) times the total premium per annum 1.25 times the single premium (for entry age <45 years) 1.1 times the single premium (for entry age >=45 years)
Maximum Sum Assured (in Rs.) 30 times the premium per annum (for entry age <=45 years) 25 times the premium per annum (for entry age of between 46 to 60 years) 5 times the Single premium, if age at maturity is <= 65 years (assuming, no Critical Illness Benefit Rider has not been opted for) 3 times the Single premium if age at maturity is between 66 to 70 years (assuming Critical Illness Benefit Rider has not opted for) 5 times the Single premium if age at maturity <=55 years (assuming Critical Illness Benefit Rider has been opted for) 3 times the Single premium if age at maturity is between 56 to 60 years (assuming Critical Illness Benefit Rider has been opted for)

Key characteristics –

1.      Death Benefit: In the event of the Life Assured’s death during the term of the policy, the company will pay his beneficiary/nominee the higher of Sum Assured and his Fund Value.

2.      Maturity Benefit: If the policyholder survives to the end of the policy term, then he will receive the Fund Value.

3.      Investment funds: You can choose from any of the following four investment funds, based on your risk appetite and expectations of return. For example, those in their early 20s-30s are relatively better off investing in an stock/equity-heavy fund, as opposed to those in their early-mid 40s who might want to opt for rather safe top-rated bonds.

Fund name Asset classes invested in (as a % of overall fund portfolio)
Government / Government Guaranteed Securities / Corporate Debt Short-term investments (e.g. money market instruments) Listed equities/stocks
Bond Fund >=60% <=40% Nil
Secured Fund >=45% <=40% 15-55%
Balanced Fund >=30% <=40% 30-70%
Growth Fund >=20% <=40% 40-80%

4.      Switching: One is offered the flexibility of changing his investment fund for the entire Fund Value during the policy term, subject to switching charges, if any.

To get a tangible sense of what one can expect in benefits from the policy, here are a couple of illustrations –

For regular pay

Entry Age 20 years
Policy Term 20 years
Premium Payment Term 20 years
Premium payment frequency Annual
Annual Premium (in Rs.) 20,000
Sum Assured (in Rs.) 4,20,000 ((Policy term, i.e. 20) + 1) x Rs. 20,000 (Annual premium))
5,00,000 (10 x Annual Premium)
Investment Fund chosen Growth Fund
Fund Value at Maturity (in Rs.) 6,41,774 (assuming a Gross Yield of 6%); effectively  a rate of return of 4.7% 10,25,089 (assuming a Gross Yield of 10%); effectively  a rate of return of 9%
Death Benefit during the 1st year of the policy 4,20,000 (assuming a Gross Yield of 6%) 4,20,000 (assuming a Gross Yield of 10%)
Death Benefit during the 10th year of the policy 4,20,000 (assuming a Gross Yield of 6%) 4,20,000 (assuming a Gross Yield of 10%)
Death Benefit during the 20th year of the policy 6,41,774 (assuming a Gross Yield of 6%) 10,25,089 (assuming a Gross Yield of 10%)

For single-premium pay

Entry Age 20 years
Policy Term 20 years
Premium Payment Term 1 year
Premium payment frequency Single-premium pay
Annual Premium (in Rs.) 1,00,000
Sum Assured (in Rs.) 1,25,000 (1.25 x 1,00,000)
Funds opted for Growth Fund
Fund Value at Maturity (in Rs.) 2,41,195 (assuming a Gross Yield of 6%); effectively  a rate of return of 4.7% 5,15,299 (assuming a Gross Yield of 10%); effectively  a rate of return of 9%
Death Benefit during the 1st year of the policy 1,25,000 (assuming a Gross Yield of 6%) 1,25,000 (assuming a Gross Yield of 10%)
Death Benefit during the 10th year of the policy 1,52,235 (assuming a Gross Yield of 6%) 2,21,813 (assuming a Gross Yield of 10%)
Death Benefit during the 20th year of the policy 2,41,195 (assuming a Gross Yield of 6%) 5,15,299 (assuming a Gross Yield of 10%)

5.      Partial Withdrawals: Assuming all due premium contributions have been made, the LIC ‘Endowment Plus’ plan lets you withdraw money partially only after completion of five policy years, subject to various conditions.

6.      Increase/Decrease of Sum Assured: The policyholder can’t enhance his Sum Assured during the tenure of the policy. However, he is given an option to reduce his life cover, without getting any discount on subsequent premiums, once a year during the Policy Term (assuming, all due premiums have been paid).

7.      Riders: For the uninitiated, riders are additional components of an insurance plan that expand or restrict the benefits which are otherwise payable, thus offering the policyholder a flexibility to change the scope of his original policy’s coverage.

The ‘Endowment Plus’ policy comes with two riders –

a.       Accident Benefit rider: For those above 18 years of age, the company gives a so-called Accident Benefit option, wherein an amount equalling the Sum Assured–subject to minimum of Rs. 25,000 and maximum of Rs. 50 lakh–will be payable in the event of the policy owner dying due to an accident. This benefit will be awarded on top of the Sum Assured for the basic plan.

b.      Critical Illness Benefit rider: In the event of the policyholder contracting any of the defined categories of Critical Illness, LIC will pay a Critical Illness Benefit equal to the Sum Assured–subject to a minimum of Rs. 50,000 and maximum of Rs. 10 lakh.

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