Guarantee at a cost

The premium paid is divided into two parts: annual policy charges and investment. From the annual premium paid by you,first the policy administration charge and the mortality charge are deducted. What remains of the premium is then invested in the funds chosen. Rest of the charges,which we have discussed below,are levied by cancelling the units allotted to you.

Fund options. Guarantee Builder offers a choice of six funds. Of this,only one Build n Protect offers guaranteed maturity value. The rest five work in the same manner as any other unit linked insurance plan. Build n Protect is especially designed for risk-averse investors who want protection of capital. This fund invests up to 40 per cent in equities,60 to 100 per cent in government bonds,and 0 to 20 per cent in money market instruments.

Build n Protect guarantees you return of the entire premium paid at maturity. Over and above this,the company raises this guaranteed maturity value every financial year. At the end of each financial year,it adds 1 per cent of the sum of investment premium payable over the term of the policy,if the reference rate for that year is at least 3.5 per cent. The reference rate is equal to the benchmark 10-year government bond yield. For the last 10 years,this rate has not come below the 4 per cent mark. The company will also make special additions at the end of the 10th and the 15th policy year. These additions are a part of only this fund option. Moreover,they are paid to you only at maturity and not if your nominee is receiving death benefit.

Besides,there are five other fund options see table for details. Build n protect is the default option in the first policy year for all investors. After the completion of year one,you are allowed to shift to any of these funds.

Charges. The policy scores low on charges. The policy administration charge is Rs 1,000 per month in case of annual premium payment mode and Rs 1,080 otherwise. Other plans in the same category charge Rs 40 a month Rs 480 annually and make no distinction between modes of payment. Mortality charge varies from person to person. These two charges form the annual policy charge component and are deducted from the annual premium. Rest of the charges are levied by cancelling the units allotted. The premium allocation charge is 40 per cent in the first year and gradually tapers off to zero in the sixth policy year. The policy allows four free switches in a year. Over and above this you will be charged Rs 100 per switch. The policy doesnt encourage early exit and therefore levies a steep surrender charge: 90 per cent in the first year and zero after the sixth year.

What should you do

Compared with similar products available in the market,this policy scores highly on three fronts: high minimum sum assured,payment of fund value and sum assured as death benefit,and special additions made by the company to the guaranteed maturity value fund. Moreover,the company restores the additions in case of renewal of policy within a stipulated time period even after discontinuance.

Where the policy lags is in pricing and flexibility. The policy scores low on pricing. The premium allocation and fund management charges are too high, says Harsh Roongta,chief executive officer,apnainsurance.com.

Other plans in this space allow choice of funds. Although no additions are offered in other plans by ICICI,Reliance and Kotak Life insurance,you can invest in your chosen fund and also ensure preservation of capital invested. However,in this case,you will have to stick to just one fund Build n protect in case you want to get assured returns. Further ,no riders are available along with this plan.

As for whether you should buy the policy,here is what Roongta advises: Ideally,insurance and investment should be kept separate. People who want the convenience of insurance and investment in one and who are risk-averse can go for this policy. However,this comfort will come

at a cost.

suneeti.ahujaexpressindia.com