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My husband had got ICICI Prudential LifeTime Super in Dec. 2006.

We invest regularly in it Rs. 2000/- monthly.

It has appreciated our investment principal to around 20% in four years. (Until now we have put Rs. 96000/- and current Fund Value it shows is Rs. 1,16,000/-.

I understand that ULIPs are not short term investment instruments though.

Should we continue the policy ? How do you see in the light new ULIP regulations ?

Please suggest.

– Thanks & Regards,

    Kalyani Tiwari

 

 

 

 

19 Answers

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1 Chakri November 24, 2010 at 10:57 pm

Kalyani,

Few ULIPs will tell you it is necessary to pay first 3 years premium and the lock in period will be 5 years and some ULIPs will say you have to pay till the policy term. If it is the second case then if you stopped after paying 3 premiums then it will lapse and they will not refund your amount what is there in the fund value. In this second case if you want to stop the premium payment then you have to give them standing instructions like you want to get the insurance coverage but will not pay further premiums, then they will take the existing fund value and they will provide coverage till the fund value is more than one year premium value. If it comes to one year premium value then they will terminate the policy and hand over the fund value to the proposer. Again if you want to withdraw by closing then the closing charges will vary from 50% [if you close after 5 yrs] – 10% [if you close after 10yrs] depending upon the period what you have the policy. It will be defined in the contract paper which they have sent along with the policy certificate.

Since you have taken the policy in year 2006, the new regulations will not come into picture for your policy. New regulations are for new policies only.

Hope this helps!

Thanks,
Chakri

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2 Dominic Prakash November 25, 2010 at 9:03 am

In current market levels 20% overall in 4 years is not that good. I am also in a similar situation but I have invested in Liftime policy of ICICI. This has given me 33% in 4 years.

I am also reading so many articles that the ULIPs are not for short term etc.. Personally I dont agree with that statement as my MF investments have given far better returns and even after 5 more years my ULIP will not be better than the current level. I am also planning to withdraw and as a first step I switched my existing amount to a debt/protector fund so that the value will not go down further.

Another ULIP of mine Tata-AIG was the biggest mistake of my life and after 4 years my current return is just 5%. Here I have surrender charges too :(

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3 Ramesh Mangal November 25, 2010 at 12:01 pm

In my view, although it appears your money has not performed as well as one likes to, but that performance should include the high costs which you have ALREADY paid in the first 3 years. So considering that initial costs, overall your portfolio performance should not be bad. Now there are no more high costs, you should relook into the FMC and other charges and if they are below 2.5%, you should continue this policy.

If you stop this policy and opt for a newer one, you will again pay those charges (although lower than previous) – NOT Recommended.

Putting your money in MFs now will not be much different from where you already are. :)

Also go through this post.
http://www.subramoney.com/2010/10/ulips-are-good/

Hope this helps.

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4 shashank kashettiwar November 25, 2010 at 6:10 pm

Kalyani,
What is the cover amount your husband has chosen and what’s his age?

With this information more refined advice is possible.

(Also read my comment which appears as the last comment on the above mentioned post. It may provide you some more insight regarding how to make the ULIP work properly for you.)

shashank

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5 Kalyani Tiwari November 25, 2010 at 7:51 pm

hi there!

I am very thankful to all you, I must say…

@ Ramesh – I read the post you mentioned… great post… positive words on ULIP after so long… :)

I have done some research on ULIP top-ups to know it in more detail, here:
http://www.moneycontrol.com/news/insurance-analysis/want-more-equity-try-ulip-top-ups-insteadmutual-funds_184310.html

both the article were eyeopeners for me… wasn’t aware that top-ups in case of ULIP can “good”
whereas top-up in MFs are not as good… read in “Systematic Investment Planning” a book by Network 18 publications… that in case of SIPs, investing monthly (with 8% increase yearly in premiums – to beat inflation) is better practice…

@ Shashak – again your comment was too full of nitty-gritties on investment practices, thanks. My husband’s cover amount is very low as Rs. 2,40,000/- , term is 20 yrs and his age is 28 yrs.

so, the result as of now of this exercise is, basically, we are re-thinking over surrendering the ULIP and also consider top-ups… we can pay Rs. 24,000 /- (an yearly premium) at the start of next FY… also thinking from tax rebate perspective… what say ??

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6 Ramesh Mangal November 26, 2010 at 11:01 am

Everything has its own pros and cons. Well, some have more cons. If top-ups are good in ULIP, then they must be good in MFs too. SIPs are good, no doubt. But there are conditions when top-ups and lumpsums are much much better. :)
I have not read that book, so it will be worthwhile if you can summarise the reason why they have said what they have said. :)

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7 Kalyani Tiwari November 27, 2010 at 5:52 pm

Ramesh,

Network 18 publications book have mentioned two different methodologies to mutual funds investments:
1. one-time investment
2. periodic investment (SIP)

so they mentioned that in case of SIPs, investing monthly (with 8% increase yearly in premiums – to beat inflation) is a better practice…

… as SIP negates the need of timing the markets using rupee-cost averaging mechanism.

did this answer your query ??

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8 Ramesh Mangal November 27, 2010 at 6:25 pm

Again as I mentioned above, with the present structure of no-load in MFs, top-ups in MF are way better than any other top-ups which charge money.
Also, you need to understand that as a equity product, both MF and equity funds in ULIPs are similar baskets of well-diversified portfolios. So topups in both are equal in that sense.
The article you mentioned is old, when the entry load for topups in equity MF was 2.25% and in ULIPs was 1%, and with new changes the analysis is no longer valid. :)
Think over this – you have a SIP which buys on every 5th day of the month. You are convinced that SIP in MF is a good thing (I also agree!). So this month, your SIP amount bought at the recent market peak. Now you have some saved money which you want to invest, but are skeptical of investing as a topup/lumpsum in the same MF (because of some articles/books). Investing it now will get you more units and relatively better gains that the last SIP amount.
Also, if you able to invest a lumpsum of money during the absolute low point of the market, that money will grow much much more than any other SIP! Similarly, if you bought lumpsum at the highest point of the market, that will grow the slowest or even cause a loss.
By spreading your investing time (SIP=diversification across time), you decrease the risk of your investing at peaks. But if you can identify the relative/absolute trough, do invest lumpsum/topups.

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9 shashank kashettiwar November 26, 2010 at 11:43 am

Kalyani,
This product was one of the best product in ULIP category. It was unfortunate that it was being ‘missold’ or ‘ misbought’ because most of the time the seller and the buyer both were unaware about the effective use of it. All were too focussed upon the NAV or the ‘returns’ part of it rather than focussing on what benefits it can create on the insurance side! Again you are misled by that post which you have read and liked! THE TOP UP PREMIUM IS NOT AVAILABLE FOR Life Time Super. This feature of unlimited top up was available in the original product of ICICI-Pru Life, called ‘Life Time’; which was discontinued from June’06 on IRDA’s then new guidelines for removing this feature from all insurance products and replaced with a limited top up of just 25% of the base premium-which is available in Life Time Super. (Subra bought his ULIP from HDFC in 2004. ) So you cannot put in more than 6000/- as top up; treated as pure investment. (Now this feature is also not available in new ULIP guidelines applicable today. The top up can be with additional insurance cover only!). Now that we have talked enough about this top up issue let’s move to other beneficial features which you can think of.
You haven’t made use of two excellent features it had to offer. One was you could have chosen a Tenure upto age 70-75; which makes your planning open ended , instead you chose just a 20 yr tenure. The tenure cannot be extended now.

The second feature was very very powerful. It was cover upto 100-120 times the premium amount for ages below 30 yrs i.e. you could have taken a cover of 24-27 lakhs for the same premium of 24,000/- This is the most powerful feature a ULIP has to offer. If it is opted then on asset class basis i.e. investments in the equities as a class; the term+MF combination CANNOT beat the ULIP at all. Not in short, medium or long term….ever. (The real misselling cry should be about these two points but almost everyone seems to focus on the investment returns, allocation charges and other less important issues!). You see, on a long term basis whatever MFs we have in our portfolio would end up giving returns withiin a very tight band, near index returns. The returns on an individual diversified asset has to come close to the asset class; the equities returns, that is represented by Index. Also the collective weighted average return on our MF potrfolio would be very very close to index rerurns. So on returns basis the ULIP fund or any diversified equity fund are not different at all in a long run!

So when we buy a ULIP the first question we should ask is what is the cover multiplier available. Other things are of secondary importance!

Now what you can do to improve your situation? DON’T EVEN THINK OF DISCONTINUING THIS PRODUCT FOR WHATEVER REASONS. You can increase the cover to almost 25 lakhs. Do it. You have to apply one month before the policy anniversary, undergo a medical and the insurer would increase the cover in the same policy. You may even put in 6000/ as the top up if you wish so( that is the max allowed per policy year. Also works on cumulative basis with some companies. i.e. if you haven’t put in top ups in previous years, it can be put in a one go. Confirm it from the policy document whether applicable in your case)
If you have any further doubts, let me know. (I wish I could have educated you on the product nittiy gritties but space and time don’t allow that.)

shashank

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10 Manish Chauhan November 26, 2010 at 12:30 pm

Shashank

Thanks for detialed reply . Can you elaborate more on your statement “If it is opted then on asset class basis i.e. investments in the equities as a class; the term+MF combination CANNOT beat the ULIP at all. Not in short, medium or long term…” what does that mean actually ?

Also you said some lines later that “So on returns basis the ULIP fund or any diversified equity fund are not different at all in a long run!” . Are they not contadictory to each other ?

Manish

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11 Kalyani Tiwari November 27, 2010 at 4:29 pm

Shashank,

I have worked on your guidelines to improve our current situation:

I have read online brochure and policy document for ICICI Prudential Life Time Super and here are my case specific details:

I. Benefits:
Sum Assured / Insurance Cover / LifeTime Super – Rs. 2,40,000.00 /-
Accdt & Disability Ben. Rider – Rs. 2,40,000 /-

II. Charges:
Premium Allocation Charges – 4 %, 3rd year onwards
FMC – 2.25 % Maximizer Fund and 2.25 % Flexi Growth Fund ( we currently hold both of these funds )

III. Top-up
A way to increase my Sum Assured… so will it go to my ‘insurance’ part or ‘investment’ part of my LifeTime super plan

I have following queries:
1. What kind of fund LifeTime Super is – Retirement, Wealth, Childrens’ Education or Health ?
2. In the policy document, life cover is defined as “difference between Sum Assured and Fund Value at time point of time” – what this means ? is our current insurance less than sum assured ( 2,40,000 – 1,16,000 = 1,24,000 ) ?
3. Top-up and increasing Sum Assured is same. Isn’t it ? You mentioned here in one post “…You can increase the cover to almost 25 lakhs. Do it. You have to apply one month before the policy anniversary, undergo a medical and the insurer would increase the cover in the same policy. You may even put in 6000/ as the top up if you wish so…”
4. How can I optimize charges being levied currently ? Should I go for Flexi Growth Fund (min 80 % equity fund and Maximizer – min 75 % equity fund) instead of both ? So that, annual FMC would come to 2.25 % from 4.50 % ( Flexi Growth, 2.25 % plus Maximizer, 2.25 %) ?
5. Also, why are Premium allocation charges still there ? Although they say that additional allocation 4 % of annual premium every 4 years, starting from the end of 4th year provided all the premium payments have been made till the date of allocation. Is it a kind of compensation ?

Can you please provide your views on the same ?


Thanks,
Kalyani

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12 Kalyani Tiwari November 26, 2010 at 12:51 pm

Thank you for your guidance in detail, Shashank…

On top of all, I am amazed by your willingness to help out people…

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13 shashank kashettiwar November 26, 2010 at 1:45 pm

Manish,

ULIP ‘fund’ is just like any other mutual fund. So returns on this ‘fund’ are going to be in the similar range where a mutual fund would take us.( Visualisation would be easier if you take the scenario where the fund value in ULIP has become more than SA. If both invest in the same asset class e.g equities then the returns on long term basis would come very close to Index returns in both the cases.) Here I’m NOT talking about return on premium.

Return on premium can be applicable when we compare the two strategies of buying insurance(I would rather say allocating your savings in various instruments). On one hand ULIP and the other strategy of splitting the same premium into- a term insurance+ a mutual fund combo. Here we do the comparision of the return on the premium from ULIP investment with the return on total investment in the combo. For sensibly high cover multipliers, the ULIP scores over the combo. Apart from allocation charges i.e. expenses getting spread over a large life cover there is one equally important factor why it happens so. That is the effect of the way increasing and level premium products are designed. In a level premium product, like the term insurance the premium at age 30 is much more than required to support the risk for that age. The extra premium is invested by the insurer in safe G-secs and applied when the level premium falls below the required amount to cover the risk at higher age. But this extra premium is available to us in a ULIP. Which we invest in higher yielding assets like equities and more than compensate for the mortality charge growth. As the insurer is a conservative animal and as the regulations also don’t allow him, he doesn’t grow the extra premium in a level term plan in equities! And why should he do it if he can price the product in accordance with safe investments like G-secs? So level premium term plans are akin to a 30 year old paying the premium for age 60 and at age 60 paying the premium for age 30 in the same policy!

Basically in both scenarios we are investing in the same asset class. One cannot say that a diversified equity fund is going to perform better than a ULIP fund- which is again a diversified equity fund only or vice versa.(Actually one can say that probably the ULIP fund would perform better because there is less redemption pressure, so more cash can be kept invested and also the fund manager can take longer term calls than a typical diversified equity fund. Similar theoretical argument is available for comparision of returns on an ELSS and a open ended diversified fund! Because of lock in, lesser redemption pressure, possibility of longer term calls, and the mandate to stay invested in equities, the ELSS should be more managiable for a fund manager and fetch higher returns than open ended diversified one!)

Have I made it clearer or more confused?

shashank

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14 prabeesh November 27, 2010 at 10:44 pm

For me why term+MF wins over ULIP is because of following reasons.

1. Lock In..once i buy a ULIP i am locked into it for long term,it doesn’t matter if the fund performs above the index or below the index,i am stuck to it,with my investments. I only have option of switching between same ULIP.

2. Over Long term there is no guarantee of any fund giving good return( you can see more than 85% of Mutual Funds are performing at par or below the index now) ,so you cannot say ULIP will definitely perform at par with index in long run.

3. In case of MF my investments are liquid. so i can wait for even 1 or 2 years and switch my fund to other MF which is performing better at that time.

4. I don’t agree with people disagreeing on talk only on returns part,,i think the very purpose of being in equity is because it gives returns which beat the inflation,so the better the return , better my money works.If you dont want it ,you always have Bank Fixed deposit.

5. Increasing the Sum Assured in ULIP will also increase the Mortality charges of underlying the insurance amount. In case of ULIP the policy is cleverly made to associate mortality charge along with person age.So the Mortality charge keep increasing every year as the person age increases.

So for me if a person doesn’t have much idea about equity and doesn’t bother to learn.Even he should go for term+index fund and not ULIP.

All i am saying is what if ULIP product that i buy,which currently performs well and has good track of performance,after 3 years starts performing continuously below index?. Should i exit ULIP and buy another one to pay the load again? or be with it for life? or switch back to MF at that time?

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15 shashank kashettiwar November 28, 2010 at 4:00 am

From financial planning point of view I see some unique and extremely important benefits of ULIP and other traditional savings plans too. One of these benefits is so important that it compensates for all the faults we can conceivably find or perceive in a savings type of insurance plan, which a ULIP is.But I will talk about them later. Let me express my thoughts on mutual fund portfolio and managing that portfolio first.

I think one should restrict the MF portfolio to max 5-6 funds. Two reasons: what is the logic in creating a larger diversified portfolio of a already diversified investment?
The second reason is the ‘managiability’ of a larger no of funds in the portfolio. Now how do I select these funds? The usual 3-4 criterions. Some quantitative, some qualitative. Quantitative- past performance with respect to benchmark, comparison with same category funds ,may be expense ratio. Qualitative- who is the fund manager, fund house reputation, the general theme of the fund. So these are the typical selection criterion. Or there could be some more complex factors considered. Also a logic like, let’s base the selection on the rankings given by ‘Valueresearch’, ‘moneycontrol’ or ‘jagoinvestor’ as they are factoring in even more variables to arrive at their rankings. Based on these I would select my funds from the top quartile(25%) or the top decile(10%) or the top 10 and so on. So this is how the typical selection process goes. Have all these selected funds delivered same returns? No, they are having notable differences among themselves. The difference in the range could be between 5-10% or even more. And everything based on past which may not be repeated again.
After selection comes the management. This is from two aspects. One is asset rebalancing in the face of one asset class racing ahead and preserving these gains or avoiding the volatility in the portfolio. The second is just the performance review. Keeping the good once and throwing out the bad once and replace with new star performers. The review and churning the portfolio could be an yearly event if not earlier. This one year period allows us to churn the portfolio without the botheration of tax issues. So again the selection and managing cycles would proceed.

Now choosing the best funds every year or time, does it guarantee that in the long run my portfolio is going to deliver a weighed average return more than the Index and that too substantially more? Substantially is -a difference of @5% and more in long term. Diferrences of 1-2% over or under the index would not result in creating any noticeable impact on fulfillment of goals on a 15-20 year scale when the base rate we are talking about is say 18%. The quantitative difference in the corpus created will be there, no doubt, but the goal fulfillment is not impacted.( Some years ago in a MF launch of a NFO I came across a presentation which was talking about timing the market versus buy and hold strategy also explaining the power of equity as a asset class. Some study done by a reputed bank stated that if a wise guy had bought the index at lowest point every year for the last 20 yrs and if a fool had bought it at the highest point every year then the difference in their yield would be 2% only. The wise guy got 18% and the fool got 16%. So if we are average our performance would have been somewhere in between i.e. further reducing the gap between the best performer and us may be to just 1%, reducing further the impact on goal achievement)

Now over a long period where I can keep on churning a portfolio seeking best performance from my investment, what possible negative impact one fund I have chosen and where I have fixed my investment every year for coming 15-20-or 30 years can make? Now in case of this fund also the investment philosophy and culture of the fund house may change, the fund managers would keep on changing, the luck of the fund manager would also keep fluctuating. So the year to year performance is going to shift but still would becorrelated to the asset class.
Now what is the context of this single fund I’m sticking to? It is just one of the 5-6 funds I started with.(or one of the 10-15 for many individuals!) Later on my income and hence the saving kept on increasing manifold but I didn’t put more money in this fund but selected others. I kept my commitment to this fund limited to the starting amount only. And so on in next 15-20-30 odd years the negative impact got automatically lessened as the quantum of money going in this investment becomes smaller and smaller compared to my yearly savings and the portion of this investment in the whole wealth. Actually on such a large time scale the underperformance if at all would come pretty close to the Index. So in relative comparision its performance could be lower but in absolute terms it would still be higher than other safe asset classes.

Now this negative impact which is going to be pretty small is too low a cost when I look at all the benefits. The major being:

1) Asset rebalancing with ease and that too without botheration of tax impacts.
2) THE WAIVER OF PREMIUM RIDER IN SAVINGS PLANS.

I wish I could write the second benefit in screaming bold letters. Man, the capital will still go on building even in the case of disability of a person. Insurance planning ;which is the basis of financial planning, cannot be even thought of without proper disability planning.

This is my view about the first 4 points Prabeesh has raised. About the 5′th point I have written some matter in reply to Manish’s comments. I will write separately . It is actually an advantage but to know that we need to know about increasing and level mortality charges
or premiums and how products are built around them.

shashank

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16 prabeesh November 29, 2010 at 10:37 pm

@shashank

Do you mean 1-2% on long term doesn’t make much difference?

Let me see with example,I have used Constant SIP calculator of Jagoinvester

Monthly Investment 10000
Return Expected 12
Term 20
===========================
Corpus Created 9991479( 99.9 Lakh)

Monthly Investment 10000
Return Expected 14 ( I have increased just 2% )
Term 20
===========================
Corpus Created 13163463 ( 1Crore 31 Lakh)

Difference of 2% in 20 years is 13163463 – 9991479 = 3171984 (31.7 Lakh)

My point is very simple..

If i need to make any considerable profit in ULIP ,which takes most of the premium in intial years as front load,i will need to stay in it atleast 10years( read : moneylife current week edition,which say even after 10 years its not worth it)

Now after taking the policy after the 2nd year if my ULIP is performing below index consistently what will i do?

I do understand the advantages like Fund Switching , Top Up extra..But it best works by timing the market which a common man cannot do effectively)

The problem here with ULIP is exit and flexibility.

For past 10 years there are some of Mutual Funds which has returned 20-25%.I am not saying it will give similar in future ,but its a good indicator.

I don’t see many parameter in which ULIP beats MF+Term Insurance.

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17 agcherian June 27, 2011 at 1:16 pm

Hi all

I have been going through this conversation. As far as my experience goes I feel ICICI Prudential Life Time Super is not worth investing. I have taken a policy with yearly premium of 200,000 during 2007. I have paid 3 premiums so far and stopped from last year (2010). As of today my fund value it is just 580000/- which means it is less than the amount of total 600,000 I paid as premium on the fifth year. Never in these five years fund value crossed the amount of premiums i paid and therefore I am going to surrender this upon completion of 5 years. I also have LIC ULIPs (market plus) on which i have a reasonable growth of 14% overall after three years.

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18 Ramesh June 27, 2011 at 1:35 pm

You mean to say, since the fund value is less over 4 years, it is bad. And since the LIC Ulips have given you 14% over 3 years, they are better.

Strange.

why dont you compare the value of the fund in the last 3 years in both Ulips. And also compare them with the benchmarks (Sensex/Nifty). That will give you a better idea. Also rememeber, Ulips are long term products, and you will reap the benefits only after 10-15 years or so.

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19 Umesh Tiwari August 6, 2012 at 3:26 pm

I have ICICI pro flexigrowth 02 nos ULIP procured in 2007. So far the fund value is less than or equl to my investment. Please guide me what to do to get the best of the investment. So far I have not use the fund switch facility Please guide how to use the same.

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