New products, regulations, features and options, interpreted from your perspective

Big dream, low return

Since the Insurance Regulatory and Development Authority (IRDA) started clearing unit-linked insurance plans (ULIPs) according to the revised regulations, new and improved ULIPs are flooding the market. Birla Sun Life Insurance (BSLI) unveiled 'two non-participating' ULIPs - BSLI Dream Endowment Plan and BSLI Classic Endowment Plan. As with other ULIPs, these new products also claim to offer customers 'a balance of savings and protection'. But they actually offer very low returns. By our estimates, you will earn not more than 6%-7%, almost similar to bank fixed deposits.

BSLI Dream Endowment Plan promises a guaranteed savings amount on maturity. But this amount (the company does not say how much) will, in all likelihood, be more than eaten up by high inflation, especially in urban areas. BSLI Classic Endowment offers a self-managed option that provides customers access to BSLI's suite of 10 investment funds, allowing them freedom to switch between its funds by allocating 5%-100% of the premium, in varying proportions, according to their risk appetite.

These policies come in different flavours: Income Advantage, Assure, Protector, Builder Plans, Enhancer, Creator, Magnifier, Maximiser, Multiplier and Super 20. But, in practice, these choices are neither useful nor relevant. Investors can also opt for an additional sum assured while buying a policy, and pay a top-up premium of Rs5,000 that will be added to their basic premium. The policy comes with five riders like BSLI Accidental Death and Disability Rider, BSLI Critical Illness Rider, BSLI Surgical Care Rider, BSLI Hospital Care Rider and BSLI Waiver of Premium Rider.

The policy carries a 7.50% premium allocation charge in the first year; 6.50% in the second year; 5% from the third year onwards; and 2% will be charged on any top-up premium. BSLI will charge 1% per annum as fund management fee for Income Advantage, Assure, Protector and Builder Plans. Enhancer and Creator carry a 1.25% management fee, while Magnifier, Maximiser, Multiplier and Super 20 carry a 1.35% charge. Remember, all charges are fixed (whether the investment gives any returns or not) and will eat up a large part of the returns.

More of the same

SBI Life is offering SBI Unit Plus Super, available in nine options: Index Fund, Equity Fund, Top 300 Fund, Equity Optimiser Fund, P/E Managed Fund, Growth Fund, Balanced Fund, Bond Fund and Money Market Fund. The scheme is almost identical to BSLI's products.

The Index Fund will track the S&P CNX Nifty Index; 90% will be invested in equity and 10% in cash and money-market instruments. The Equity Fund will invest 80% in equity and the rest in debt and money-market instruments. The Top 300 Fund will focus on the top 300 stocks based on market capitalisation on the National Stock Exchange (NSE). The Equity Optimiser will invest 60%-100% in equities and up to 40% in debt and money-market instruments. The P/E Managed Fund will make investments based on the forward price/earnings ratio of the S&P CNX Nifty Index. The Bond Fund will invest 60%-100% in debt and up to 40% in money-market instruments and the Money Market Fund, as the name suggests, will invest mainly in money-market instruments and a small portion in debt.

The policy has four rider benefits, like Criti Care 13 (that covers 13 critical illnesses), an accidental death benefit-linked rider, a Premium Pay Waiver Benefit and Income Sustainer Rider (early death or permanent disability benefits).

Investors have the option to switch a minimum of Rs5,000 between the nine funds, twice during the term of the policy free of charge; more than two switches will involve a charge of Rs100 per switch. Unused switch options will not be carried forward. The regular premium policy carries 9% fund allocation fees in the first year, 6.50% for the second and third years, 6% for the fourth and fifth years, 3.50% during the sixth and seventh years and 3% until the 10th year.

Single premium policyholders will have to pay only 3% as fund allocation charges in the first year. There will be no fund allocation charges thereafter.

The Equity Fund, Top 300 Fund, Equity Optimiser Fund, P/E Managed Fund and Growth Fund carry 1.35% fund management charges. The Balanced Fund, Bond Fund and Money Market Fund carry 1.25%, 1% and 0.25% charges per annum, respectively.

Not so smart a performer

SBI Life Insurance has also floated a plan called SBI Smart Performer which claims to offer 'Higher than the Highest' NAV. It comes with two options - a Secure Plan and Secure and Growth Plan.

The entire corpus of the premium of the Secure Plan will be invested in a 'daily protect fund'. Investors will get returns based on the performance of this Fund and the underlying guarantee. In the Secure and Growth Plan, 80% of the premium will be invested in a 'daily protect fund' and 20% in an index fund that tracks the S&P CNX Nifty Index. The Secure and Growth Plan offers an auto-rebalancing facility. If the money invested in the index fund appreciates or crosses 15%, these gains will be put into the daily protect fund to secure the gains.

This facility is available only for the first six years of the policy term. If the gains do not reach the 15% mark, investors' wealth will be further eroded due to a high tracking error.

The daily protect fund claims to offer 5% higher than the highest guaranteed NAV in the first seven years, or the prevailing NAV at maturity, whichever is higher. The Fund will further charge 0.50% per annum on the daily fund value, by cancellation of units on a monthly basis, to provide the guaranteed NAV. The sum assured is ten or seven times the annual premium, depending on the policyholder's age. The Fund will invest in equity and debt.

The term of the policy is 10 years. It will charge 8.50% for premium allocation in the first year, which will be reduced to 6% from the second to the fifth years. If one takes into account the high charges, the returns will be almost similar to those of a debt fund! These so-called highest NAV products aim to lure gullible investors by concocting confusing methodologies.

Full cover on purchase price

Bharti Axa General Insurance has introduced an add-on insurance product for car owners that will give them the full purchase price of the vehicle, in case of theft or loss, in the first two years after the purchase. This will also cover the road tax and first-time registration charges that a buyer would incur on the vehicle.

This add-on product, called the 'invoice price cover', will be available with the company's motor insurance product, SmartDrive Private Car Policy. Most insurance companies provide cover on the depreciating value, which varies from 20% to 30% in the first two years. This product will enable customers to avail of cover which is equivalent to the purchase price of their vehicles.

After two years, the cover will be based on the normal depreciating value. Motor insurance premium constitutes 3.5% of the car value. The add-on product would increase the premium by 0.25%-1.25% of the value of the vehicles. — Moneylife Digital Team