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Review : ICICI Pru ACE Plan

Posted in Reviews by khotapaisa on May 9, 2010

I must admit that I was introduced to this plan by one of the blog readers. And once I went thru the details of the plan, it really surprised me. This plan has some really attractive terms making it a relatively cheap ULIP. Though there is nothing sunstancially new in this plan, what makes it more attractive is that it doesn’t have many too many fine-prints for the investor to worry about, making it simpler.

The plan has no premium allocation charge. The policy administration charges are 720/- per annum while the fund management charge (for equity fund) is low at 1.35%. By comparison, most of the equity mutual funds charge you 2-2.25% for fund management. Overall these charges result in you getting a higher net return over long term. The fund offers two investment strategies namely Trigger Portfolio & Fixed Portfolio Strategy. In Trigger Portfolio Strategy, the equity-to-debt ratio is always mentained at 3:1 while in Fixed Portfolio Strategy, the asset allocation is the resposibilty of the investor. Since it makes sense to invest 100% in equity during early years of investment, you make like to opt for Fixed Portfolio giving you the flexibilty to manage your equity exposure. Though for the layman, the Trigger Portfolio offers a simpler investment strategy. The plan also offers 2% loyalty bonus from the 6th years of policy.

On the downside, the fund charges 1% load on top-up premium, though it is not a big issue. Infact people using the top-up mechanism frequently would prefer it as there seems to be no upper limit to the top-up. Another limitation can be stated as the low free switches available every year, though in practice it shouldn’t effect the investor much. Some of the policy terms encourage you to invest regularly & for long, which is good for the investor.

Overall, it a comparatively low cost ULIP. So if you are looking for a plain, low-cost ULIP, you may like to consider this plan.


New Kid In The Town – Guaranteed NAV ULIP Plan

Posted in Reviews by khotapaisa on August 20, 2009

Welcome to the ULIP party. This is one area where products are increasingly becoming too complex for customers (even experts) to understand. Wasn’t ULIP already a complex product that we, the hard earning people, needed even more complex product like this? When I first read about this (in a newspaper), it sounded too good to be true. After all, why would someone offer me a product where I win all the times? I was sure that there was something more to it but it took me some time to figure it out. I don’t know if that’s the way the product is designed to work. In short, here is how I would do it if I were to offer this type of product to the world.
Say, at the end of every day, I would calculate the appreciation w.r.t the previous day. If there is any appreciation, I would move that into the debt bucket. I will keep it doing for next 7 years. So, what I end up doing is that I lock the gains in a debt fund (secure investment) and in turn reduce the equity exposure steadily over time. Anyways, based on this understanding, I did some number crunching and I came out with this –

“In the worst case, I will have to give <1% of the fund corpus (this is less than the fund management charge of 1.5% that I charge) out of my pocket”. – Based on my assumptions.

That means that in the worst case I, the insurer, will have to forgo fund management charge for just one year. That’s it!
So, what should you do? I suggest you follow the thumb rule –

Invest in the product which you understand.

Review : LIC Market Plus

Posted in Reviews by khotapaisa on July 19, 2009

When I started analysis of LIC market Plus, I went to the LIC website looking for the policy brochure. Not surprisingly, I couldn’t find it on the website. LIC seems to be one of the very few insurers who don’t provide full policy details on the website. Anyways, there was some information along with benefit illustration provided on the website.
LIC Market Plus I is a ULIP based pension plan. There are three riders available for the customer i.e.  Life Cover, Accident Benefit & Critical Illness Benefit. The last two riders are available only if you opt for the life cover rider. It’s good to see that life cover is available as a rider. It’s always better to have the flexibility in insurance products. Since there is not much information available on the website, let’s look at the cost of the ULIP. Here comes the big surprise! For a 20 year policy without life cover, the net return turs out to be 8.6% for 10% return on investment. This makes it the one of the lowest cost pension plan (most probably the lowest cost ULIP) available in the market.
Overall, though not much information is available for this plan, it is an extremely low cost plan. So if you are planning to buy this plan, you will certainly be paying much less than most ULIP investors.

Review : LIC Health Plus

Posted in Reviews by khotapaisa on July 5, 2009

Before I go into the money part of the policy, let us see the common sense part of it. Take this –
Q : Would you be able to finance hopitalizatoin if needed, say after 2 year?
A : Well it depends on how the market performs.
Sounds weird doesn’t it. But that’s what a person would reply if he/she has bought this policy. In simple words, it is a ULIP policy meant for medical emergencies. This very concept is full of contradictions, a sample of which you saw just now. Without going into details, let me put it this way. The world of insurance has two types of products, simple products & complex products. The simple ones are few and serve the consumer while the complex ones are many and serve the insurer. And this policy clearly falls in the second category.
Now coming to the mathematics, all that I want to state is that the effective rate of return (one that you get) for a 20 years policy turns out to be mere 6.15%. This makes it probably the costliest ULIP based policy in the market. I would say this kind of complex and convoluted (to the point that it misleads) policy should not be allowed by the regulator. So if you are planning to buy it, be sure that you know what you are buying.

In a simple world, a health insurance policy is for your medical expenses. You undergo treatment, you get paid/reimbursed. Now, why would the insurer try to change it into something so complex that it is not easy to understand by the layman? Because, by making it complex, the insurer can make money out of you without you knowing it. That’s why it is said that you should always buy simple (to the point) insurance products.

Review : Birla Sunlife Dream Plan

Posted in Reviews by khotapaisa on June 21, 2009

I must say that this is one product that took the insurance market with a surprise. It was (and probably still is) the only product with no premium allocation charges. That means that all the premium you pay is fully invested. Compare it to other ULIPs which deduct anywhere between 10%-60% of premium just in the first year. Add to this the fact that it offers a very low mortality charge and hence is a good alternative to term plans. Infact, it looks too good to be true. Last month, I asked my financial advisor as to how this product is able to maintain such low charges and why is there still no competitor to it? Well, I didn’t get a clear answer. But if you look deeper, it is not as good (still better of the lot) as it looks. On the term plan side of it, the minimum premium for a 1 crore policy (30 year old for 25 years) is 23050/-. The same cover from HDFC costs 19878/-. So, if you are looking to take Dream plan as a term plan (a lot of us do it), you better go for HDFC term plan. Even cheaper term plans are also there. On the ULIP front, the Dream plan manages to beat the competition. Though it has higher fund management charges, it still is the one of the lowest cost ULIP in market.

In short, this is arguably the best ULIP (on cost basis) out in the market. But if you plan to take it as an alternative to pure term plan, it may well not be a good idea.

Update on 29/11/2009Thanx to palash for pointing out the hidden lines. I did some recalculations and found that I has missed on the administration charges which are extremely high in this plan. So much that the return from the policy is significantly lower. Given this new light, I would recommend you against my earlier conclusion (as above).