A few months back HDFC Life launched an online cheapest ULIP product called HDFC Click2Invest. This product claims itself as the game changer due to its offer of very low charges. However, can we still consider mixing Insurance with Investment?
Few of the features highlighted with this product are as below.
- You can buy this ULIP Plan online.
- This product offers “No Policy Allocation Charges”.
- In addition, there will be “No Policy Admin Charges”.
- Premium paying options like single pay, limited payment options like 5 yrs, 7 yrs, 10 yrs or regular payment.
- You have options to choose 8 types of funds.
Below is an eligibility criterion of this investment.
Please note the highlighted area of above image. Considering the current tax rules, if you invest in single premium or your age is above 55 years of age then there will be no tax benefit on maturity, which is usually available for Life Insurance Products.
Maturity or Death Benefits–
At maturity, you will receive the value of the fund as on maturity date. However, in case of death, the nominee will receive the highest of below three options.
- Sum Assured,
- Fund Value,
- 105% of premiums paid.
This plan claims to be charges only two types of charges.
- Fund Management Charges-This will be 1.35% of fund value per year.
- Mortality Charges-It depends on age and the sum assured opted by buyer.
Surrender of this policy–
If you surrender within 5 years of policy term, then it is considered as discontinued policy. So, accordingly benefits will be payable. If you surrender after 5 years, then you will receive the fund value as on date.
This plan offers no loan facility during the policy period.
Whether can we consider this plan for buying?
- This plan offers lowest charges among existing ULIPs. As buying, this plan is online and no intermediaries involved. Therefore, this is a cost efficient way of investing than the typical insurance buying. When we consider the cost of fund management charges, it is very much at competitive rate compared to mutual fund expenses.
- You have 4 free switching options in a year within available fund types.
- You can withdraw partially 4 times a year once the policy completes 5 years.
- A few reviews mentioned that lock in about 5 years is negative point. However, I feel it as an advantage. Reason is equity investment is for the long term. Hence, I consider this as a positive point rather than negative.
- There will be no tax benefit on maturity to those who opt for a single premium or the aged above 55 years. Reason is, in both the cases the eligibility for Sec.10 (10D) fails. Hence attract tax on maturity (But death claim is tax-free).
- In case of death claim, you will receive only the highest of sum assured, fund value or 105% of premiums paid. Whereas if you opt for term insurance along with other investments, you get the term insurance sum assured along with investing amount value. Because this is Type I ULIP, where in on death nominee will receive either sum assured or fund value (whichever is higher). In such type of insurance policies mortality charges usually go down as the fund value increases. Another type of ULIPs is called Type II. In such type of ULIPs, on death nominee will receive both sum assured along with fund values. However, mortality charges under such type of plans will be higher than Type I.
- Higher the age means higher mortality charges. This charge is deducted from your fund value. So, lesser investable amount for investors. Hence younger the age more benefit.
- Leading negative point towards ULIPs is tracking the fund performance. We hardly have data on that. If data available also it is hard for one to come out. Because even though this plan offers free surrender after 5 years, but what about the insurance cost if one want to buy after paying 5 years? It cost more to buy insurance after 5 years than having it now. This is a reason why you should avoid clubbing insurance with investment.
- If you try to protect the required life insurance by buying this plan, then one must be ready to pay higher premium. So hard for few to manage required life cover than simply buying term insurance.
- Few reviews suggested to invest in the name of spouse or kids to avoid the higher mortality charges. However, if your spouse is not earning then is she really need life insurance? This question applies to kids too.