Can a high sum-assured Ulip offer better cover, returns?
₹1 lakh per annum. “The Ulip premium has two elements—the death benefit and the investment value. Customers can choose their own multiple for the death benefit.
The remaining portion gets invested in the underlying fund net of charges. Most plans in the market offer a multiple of 100x of the annual premium. Younger people in our policy can have a multiple of 170x," says Madhu Burugupalli, senior executive vice president and head of products, Bajaj Allianz Life Insurance.
When it comes to an investment-linked product, financial advisers tell their clients to compare it with a combination of a term plan and an equity mutual fund. The idea is to buy a low premium term plan and invest the premium differential in an equity MFs. Data from Kotak Life Insurance shows that a 35-year-old paying a premium of ₹1 lakh for 10 years in a 40-year policy term will get ₹70 lakh on maturity, considering investment growth at 8%.
The term plan for this person can be bought at a premium of ₹46,138. The premium differential of ₹53,862 can be invested in an equity mutual fund. Assuming an expense ratio of 0.8% and compound annual growth rate of 8%, the mutual fund will accumulate ₹63.84 lakh, Kotak data shows.
“TULIP works better than a MF and term insurance combination (MF+term) for a longer tenure when compared at the same investment value and horizon because of loyalty additions on maturity," says Trivedi of Kotak Life. In the short to medium term, however, MF returns will be better until refund of different charges gets deployed," he says. However, this argument rests on the expense ratio being 0.8%.
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