Max ‘FLEXI Fortune’ ULIP: Flexibility comes at a price  

January 24, 2011

Is it becoming a trend to use the premium payment term as a backdoor entry for ‘cover continuance’? While flexibility is the proposition for the new FLEXI Fortune plan, the ticket size for a 10-year policy term is high and so are the charges for longer-term policies

HDFC Life was the first to announce a flexible premium payment term facility. Now, Max New York Life (MNYL) has come up with its own flexible features like life cover, policy term, investment strategy and of course the premium payment term.

MNYL has packaged all this in its new 'FLEXI Fortune' ULIP, that appears to be yet another case of a backdoor entry of 'cover continuance', which was apparently eased out by the Insurance Regulatory and Development Authority (IRDA) under the new rules for ULIPs in September 2010.

FLEXI Fortune offers a life cover of 10/20/30 times annualised premium, policy term options of 10/15/20 years, seven investment fund options, and a flexible premium payment term of 5 pay/10 pay/15 pay.

According to Abhinav Rahul, vice-president - corporate communication, Max New York Life Insurance, "If a policyholder takes a 20-year term policy, under the terms of the policy the premium payment term cannot be beyond 15 years. After 15 years, the policy will not be discontinued, even though there is no premium payment. The funds remain invested in equity/debt and insurance cover continues from year 16 to 20. Moreover, the plan has a 'settlement option' wherein the policyholder can decide to extend the policy term by a further 5 years. In this example, the policyholder can extend the term from 20 to 25 years and still remain invested in equity/debt from year 21 to 25."

The plan also has a 'Progressive Auto Cover Enhancement' (PACE), which the company claims is the first of its kind. This increases the sum assured automatically by 10%, starting from the 2nd year and without any increase in premium. But this will lead to increased mortality charges for policyholders. Mr Rahul said, "The mortality charges for a policyholder aged 30 on a policy term of 10 years is 1.67 for every Rs1,000 sum assured.  This will remain constant every year for 10 years of the policy term for the initial sum assured. However, in FLEXI Fortune, the sum assured keeps increasing by 10% every year (PACE) to meet the growing protection need. The policyholder will have to pay additional mortality charges for this addition to the sum assured."  

The flip side of the constant mortality charge during the policy term is that it is high so that it averages out the risk over the policy term. Moreover, the mortality charges are higher for longer plan terms. For example, the mortality charges for the 15-year plan is greater than that for the 10-year plan, and mortality charge for the 20-year plan is greater than that for the 15-year plan.

Another worthwhile feature is the 'settlement option'. The customer may choose to defer his maturity in adverse market conditions by increasing his policy term by a maximum of five years without paying any further premium. This also allows for maximizing returns as it operates like a pure investment tool in the extended period. The percentage of the payout will then be equally divided in the number of years opted for by the customer. There will be no life insurance provided during the settlement period.

The premium allocation charge is 5% for the first year and 4% thereafter. The policy administration charge is Rs960 per annum for a 10-year term and Rs600 for 15/20 years. It will inflate @5% per annum compounded annually, from the second year of the policy. The policy administration charge is higher for the 10-year term than for other policy terms. The ticket size for a 10-year policy is also much higher than for other policy terms. The other important charges like premium allocation charge and policy administration charge are in line with new ULIPs for a five-year period, on the higher side for 10 years and very high beyond 10 years (on a comparison for an average ticket size of Rs24,000).

Announcing the new plan, Rajesh Sud, chief executive officer and managing director, Max New York Life Insurance, said, "We are excited to offer life insurance products that respond realistically to consumers needs. MNYL has designed FLEXI Fortune keeping in mind the varied needs of different people. The product offers customers the flexibility to choose the policy tenure and the protection multiple that best suits their goals-whether it be savings, retirement or family security.

"At the same time, it also offers tools to manage good returns without taking undue risks through seven different fund options. With the growing need for adequate financial planning to meet requirements at different stages in life, it is important that people invest in instruments that are bundled with features, which help to maximise returns. Launching FLEXI Fortune is a natural progression in our journey to offer the consumer a complete choice of growth-oriented savings to suit various needs."

Entry and maturity age: Minimum age at entry is seven years and the maximum age is 50 years; maximum age at maturity is 70 years.

Premium payment term/policy term: 5 pay for 10-year term; 10 pay for 15-year term; 15 pay for 20-year term.

Premium payment mode: Annual, semi-annual, quarterly and monthly (quarterly and monthly modes are allowed through ECS only).

Minimum premium: Rs50,000 for 5 pay for 10-year term, for others Rs24,000 (annual) or Rs36,000 (semi-annual, quarterly and monthly).

Maximum premium: Rs1,00,000

Level of protection: For age less than 30 years - 10/20/30 times AP; 31 to 40 years - 10/20 times AP; 41 to 50 - 10 times AP (where AP is annualised premium).

Riders offered: Personal accident benefit, against dreaded diseases. — Raj Pradhan