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Insurance with frills

Smita Tripathi

Would you like to take out life insurance that lets you choose where your money is invested? Till recently such an option wasn’t available in the Indian market. Now, there’s ICICI Pru’s LifeTime that gives investors a greater say than ever before on where their money is invested.

How does it work? In most insurance policies, you do not have any control over where your money is being invested. LifeTime allows you to control your investment by deciding whether your money is going to be invested in the debt and money markets or in equity. You can also allocate your assets in such a way that part of the money is invested in debt and part in equity.

The policy allows you to choose the sum assured according to your needs. Part of the premium paid by you is adjusted towards administrative and risk cover charges, while the rest is invested in the plan of your choice. Hence, the higher the sum assured, the lower the amount invested in units. Thus, depending upon your insurance needs you have to strike a balance between the two.

Where is the money invested? ICICI Pru gives you the option of investing in an income, growth or balance fund. The minimum premium payable is Rs 18,000 annually. The sum assured can be up to 150 times of the premium paid, up to a maximum of Rs 50 lakh. Thus, by paying a premium of Rs 18,000 annually, your sum assured can be between Rs 1 lakh and Rs 27 lakh.

This is a unique feature of this policy as in all other policies, your sum assured is fixed and the premium is charged accordingly. However, in this case, since part of the premium is used to buy units in the market, the sum assured is not fixed.

Depending upon your needs you select a sum assured. Then the company deducts the administrative charges and the risk cover charges. The balance is used to buy units.

For instance, supposing you are 30 and pay a premium of Rs 18,000. And now supposing you opt for a death benefit of 20 times, then your sum assured is Rs 360,000. The initial administrative charges are 20 per cent of the premium (Rs 3,600) and this is deducted from the premium.

Thus the amount allotted to units is Rs 14,400 (Rs 18,000-Rs 3,600) and the life cover is Rs 345,600 (Rs 360,000-Rs 14,400). Now based on the life cover, risk cover charges are deducted. In this case it works out to be Rs 573. This charge is deducted by cancellation of units. The balance is the value of the units Rs 13,827 (Rs 14,400-Rs 573).

In the second year, the administrative charges are 7.5 per cent of the premium and from the third year onwards they are charged at 4 per cent. ICICI Pru itself maintains three funds – Protector (income fund), Maximiser (growth fund) and Balancer (balance fund).

The company has its own fund managers and the funds are restricted for LifeTime policy holders. As on November 1, 2002, the ICICI Pru Protector plan had a unit value of Rs 12, ICICI Pru Maximiser plan had a unit value of Rs 11.15 and the ICICI Pru Balancer plan had a unit value of Rs 9.95.

LifeTime gives you the option of switching between funds. Once every year you can switch from income to debt to balance and vice-versa, free of cost. If you switch more than once, then you have to pay charges of 1 per cent of the value of the units switched.

You can also redirect the premium to another fund. At any given point in time, you have the flexibility of investing in all three funds in the proportion you wish, under one single policy.

Lifetime also gives you the flexibility of increasing your sum assured by 25 per cent, subject to a maximum of Rs 1 lakh, every third year. This can be done three times, up to the age of 45. Besides that, it also gives you the option of decreasing your sum assured once.

Policy holders also have the option of a premium holiday, provided the premium has been paid for the first three years. The company withdraws the premium from the value of the units. Hence, as long as there is money in the investment account, you need not pay the premium.

After the first three years, you can withdraw from the investment account either partially or fully, just like any other mutual fund. But the best part is that, the withdrawals are exempt from tax under Section 10 (10D) of the Income Tax Act, as they are considered to be the proceeds of an insurance plan. Besides, you also get the tax benefit under Section 88 for the premium paid.

On death of the policyholder, the nominee will receive the death benefit chosen (less any withdrawals) or value of the units, whichever is higher.

There’s no lower limit but the maximum age for joining the scheme is 60 years. The sum assured is only provided after the age of seven till 70. Before and after, only the amount in the investment account is paid. A choice of riders including accident and disability, critical illness and major surgical assistance is also provided.

LifeTime is useful for those who are willing to pay a price to get themselves insured and are interested in investing in an avenue of their choice, which matches their risk-return profile. The policy is not for the masses but for those who truly understand their investment needs and are willing to take an active part in their investment.

Unlike other life insurance policies where one simply pays the premium and forgets about the policy, LifeTime requires one to constantly keep track of the fund in which one has invested the money.

The premium is steep in the sense, the minimum premium is Rs 18,000 annually. Also, since the money is invested in the market, there’s always an element of risk.

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