New Ulips with return of mortality charges: Should you invest?

Are the online Ulips that return mortality charges paid over the tenure worth your while?

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Ulips are not without their share of limitations, like lack of flexibility to exit.
From being reviled due to their inflated cost structure and misselling, unit-linked insurance policies (Ulips) are now being promoted as low-cost vehicles for those looking to invest in market-linked products.

Bajaj Allianz Life, Edelweiss Tokio Life, HDFC Life, ICICI Prudential Life and Canara HSBC OBC Life now offer online Ulips that return mortality charges at maturity. Almost all online Ulips have eliminated premium allocation charges as well. But are these reasons enough for you to take the plunge?

New look Ulips

Earlier, the main concern about Ulips was given that the primary objective of a Ulip holder is investment, why should she pay for the life insurance cover, which eats into returns? Life insurers decided to sweeten the deal last year by offering to return mortality charges at maturity. “The portfolio yield will go up at least 200-250 bps, even if you discount 15-20 bps per annum as time value of money,” notes Dheeraj Sehgal, Chief Distribution Officer, Bajaj Allianz Life Insurance.

Insurers believe this will appeal to individuals who do not wish to pay for a service they haven’t availed of. “For such customers, ROMC Ulips are ideal as they pay for a feature they might avail. In the event they don’t, the charges are returned,” says Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance. “In the past, we have seen a fair amount of success of Term with Return of Premium,” notes Rahul Parikh, CEO, Bajaj Capital.

Then, there is long-term capital gains tax (LTCG) on equity investments, which does not affect Ulips. Moreover, elimination of various charge heads has made the product structure simpler for DIY customers.

Newer and leaner
Total expense ratio includes GST as well as mortality charges.
Total expense ratio
Bajaj Allianz Life Insurance - Goal Assure 1.66%
ICICI Prudential Life Insurance- Signature 1.17%
HDFC Life Insurance-Click2Wealth 1.70%
Edelweiss Tokio Life Insurance-Wealth Gain Plus 1.57%
Canara HSBC OBC Life Insurance- Invest 4G 1.37%
Note: Illustration for a 35-year-old female, paying premium of Rs 1 lakh for a sum assured of Rs 10 lakh and tenure of 20 years. Assuming 8% rate of return in equity fund options.
Source: Policybazaar.com

Tread with care
Ulips are not without their share of limitations, like lack of flexibility to exit. Stopping premium payment within five years will lead to policy lapsation and you will have to pay discontinuance charges should you decide to surrender it during this period. While the cheaper cost structure is attractive, many direct equity funds have expense ratios as low as 0.64%.

Also, you have to persist with your fund manager even if your investments yield poor returns. Thus, return of mortality charges notwithstanding, those in their 60s are better off staying away from Ulips. “People in their 30s can look at Ulips as they have long-term goals, can save and invest amount in locked-in products. You need to stay invested in Ulips for 10-15 years to ensure money grows,” says Shweta Jain, Founder, Investography.
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Those who do not have a regular income or are not confident of servicing premiums annually should not opt for Ulips. They would do well to stick to mutual fund SIPs and buy an adequate term cover to secure their families.
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