The advertisement reads something like this:
- LIC's Money Plus is a ULIP with life insurance cover and high returns
- Minimum Investment: Rs 10,000 for three years. From the fourth year, Rs 10,000 can be partially withdrawn and reinvested every year up to 20 years.
- You can avail income tax rebate for every investment under section 80CCC and the maturity is not taxable under section 10(10)D.
- Hurry to grab your share before the plan closes. This plan is given only with life insurance cover.
You may be wondering whether you should rush to your nearest Life Insurance Corporation's agent to buy this policy or not.
Even LIC's website says: "This is a unit linked endowment plan which offers investment plus insurance (note the mention of insurance is after investment) during the term of the policy." The minimum policy term is five years and the maximum is 20 years.
Like a typical ULIP, the premiums minus all the charges will be utilised to buy units based on the fund option chosen. You have a choice of four funds, right from the one with zero per cent equity in the bond option to a maximum of 80 per cent equity in the growth option.
Your unit account will be subject to deduction of charges which means that the charges will not be deducted from your NAV (net asset value) but from the units.
This is a typical problem with all ULIPs where you may get a false view of excellent performance by just looking at an increasing NAV. It is only when you multiply the units by NAV and look at the fund value, you will get the true picture.
Sum assured
Minimum: Higher of five times the annualised premium or half of the policy term times the annualised premium.
In other words, if you opt for a 20-year term and pay a premium of Rs 1 lakh (Rs 100,000), then the minimum sum assured will be between Rs 5 lakh (Rs 500,000) -- 5 times annualised premium -- and Rs 10 lakh (Rs 1 million) -- half of the policy term times the annualised premium.
Maximum: 20 times the annualised premium, if age at entry is up to 55 years. That is, in case of a Rs 1 lakh premium a year, the maximum cover will be Rs 20 lakh (Rs 2 million). If the entry age is more than 55 years, the amount will be 10 times the annualised premium, Rs 10 lakh, in case of a 1 lakh premium.
Charges
The key charge is the premium allocation charge (PAC). Besides the PAC, there are other charges like policy administration charge, fund management charge of 0.75 per cent to 1.5 per cent (adjusted against NAV), mortality rate (cost of risk cover) and service tax charge.
Surrender cost
There is a lock-in of three years. That is, the surrender value is payable only after the completion of three years (even if you apply for surrender within three years). The surrender value will be the fund value of units held.
Moreover, in case the premiums are paid for less than three years and the balance in the policyholder's fund does not cover the relevant charges, the policy shall compulsorily be terminated. The balance, if any, would be refunded.
The dismal performance and the high initial expenses have acted as a double whammy for policy holders of Money Plus.
As far as figures go, in the last six months, the returns have been to the tune of 3.4 per cent. So, even if you can afford to pay a higher premium, the best strategy is to separate your insurance and your investment needs. You would certainly not be a loser by giving this policy a complete miss.
The writer is director, My Financial Advisor.
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