Max ‘FLEXI Fortune’ ULIP: Flexibility comes at a price

Is it becoming a trend to use the premium payment term as a backdoor entry for ‘cover continuance’? While flexibility is the proposition for the new FLEXI Fortune plan, the ticket size for a 10-year policy term is high and so are the charges for longer-term policies

HDFC Life was the first to announce a flexible premium payment term facility. Now, Max New York Life (MNYL) has come up with its own flexible features like life cover, policy term, investment strategy and of course the premium payment term.

MNYL has packaged all this in its new 'FLEXI Fortune' ULIP, that appears to be yet another case of a backdoor entry of 'cover continuance', which was apparently eased out by the Insurance Regulatory and Development Authority (IRDA) under the new rules for ULIPs in September 2010.

FLEXI Fortune offers a life cover of 10/20/30 times annualised premium, policy term options of 10/15/20 years, seven investment fund options, and a flexible premium payment term of 5 pay/10 pay/15 pay.

According to Abhinav Rahul, vice-president - corporate communication, Max New York Life Insurance, "If a policyholder takes a 20-year term policy, under the terms of the policy the premium payment term cannot be beyond 15 years. After 15 years, the policy will not be discontinued, even though there is no premium payment. The funds remain invested in equity/debt and insurance cover continues from year 16 to 20. Moreover, the plan has a 'settlement option' wherein the policyholder can decide to extend the policy term by a further 5 years. In this example, the policyholder can extend the term from 20 to 25 years and still remain invested in equity/debt from year 21 to 25."

The plan also has a 'Progressive Auto Cover Enhancement' (PACE), which the company claims is the first of its kind. This increases the sum assured automatically by 10%, starting from the 2nd year and without any increase in premium. But this will lead to increased mortality charges for policyholders. Mr Rahul said, "The mortality charges for a policyholder aged 30 on a policy term of 10 years is 1.67 for every Rs1,000 sum assured.  This will remain constant every year for 10 years of the policy term for the initial sum assured. However, in FLEXI Fortune, the sum assured keeps increasing by 10% every year (PACE) to meet the growing protection need. The policyholder will have to pay additional mortality charges for this addition to the sum assured."  

The flip side of the constant mortality charge during the policy term is that it is high so that it averages out the risk over the policy term. Moreover, the mortality charges are higher for longer plan terms. For example, the mortality charges for the 15-year plan is greater than that for the 10-year plan, and mortality charge for the 20-year plan is greater than that for the 15-year plan.

Another worthwhile feature is the 'settlement option'. The customer may choose to defer his maturity in adverse market conditions by increasing his policy term by a maximum of five years without paying any further premium. This also allows for maximizing returns as it operates like a pure investment tool in the extended period. The percentage of the payout will then be equally divided in the number of years opted for by the customer. There will be no life insurance provided during the settlement period.

The premium allocation charge is 5% for the first year and 4% thereafter. The policy administration charge is Rs960 per annum for a 10-year term and Rs600 for 15/20 years. It will inflate @5% per annum compounded annually, from the second year of the policy. The policy administration charge is higher for the 10-year term than for other policy terms. The ticket size for a 10-year policy is also much higher than for other policy terms. The other important charges like premium allocation charge and policy administration charge are in line with new ULIPs for a five-year period, on the higher side for 10 years and very high beyond 10 years (on a comparison for an average ticket size of Rs24,000).

Announcing the new plan, Rajesh Sud, chief executive officer and managing director, Max New York Life Insurance, said, "We are excited to offer life insurance products that respond realistically to consumers needs. MNYL has designed FLEXI Fortune keeping in mind the varied needs of different people. The product offers customers the flexibility to choose the policy tenure and the protection multiple that best suits their goals-whether it be savings, retirement or family security.

"At the same time, it also offers tools to manage good returns without taking undue risks through seven different fund options. With the growing need for adequate financial planning to meet requirements at different stages in life, it is important that people invest in instruments that are bundled with features, which help to maximise returns. Launching FLEXI Fortune is a natural progression in our journey to offer the consumer a complete choice of growth-oriented savings to suit various needs."

Entry and maturity age: Minimum age at entry is seven years and the maximum age is 50 years; maximum age at maturity is 70 years.

Premium payment term/policy term: 5 pay for 10-year term; 10 pay for 15-year term; 15 pay for 20-year term.

Premium payment mode: Annual, semi-annual, quarterly and monthly (quarterly and monthly modes are allowed through ECS only).

Minimum premium: Rs50,000 for 5 pay for 10-year term, for others Rs24,000 (annual) or Rs36,000 (semi-annual, quarterly and monthly).

Maximum premium: Rs1,00,000

Level of protection: For age less than 30 years - 10/20/30 times AP; 31 to 40 years - 10/20 times AP; 41 to 50 - 10 times AP (where AP is annualised premium).

Riders offered: Personal accident benefit, against dreaded diseases.



Madhusudan Thakkar

6 years ago

I don't once again understand logic of Raj Pradhan of so called "BACK DOOR" concept.Does he believe that cover should lapse even if there is enough fund value?As regards to mortality charge greater in case of long term ,the same is prevalent case in term policies also.This is also one of the better ULIP plan[especially for PACE feature] after HDFC Life.Are Kamesh Goyals and Punit Nandas listening?


Raj Pradhan

In Reply to Madhusudan Thakkar 6 years ago

The ULIPs pre Sep 1 had 'cover continuance'. This feature was eased out by IRDA for new ULIPs. Either you keep paying premium every year or policy is discontinued. The 'premium payment term' is another way to bring back 'cover continuance'. In old ULIPs one could pay premium for lock-in period & enjoy 'cover continuance'. In new ULIPs they have to pay till the predefined 'premium payment term' and then enjoy 'cover continuance' till end of policy term.

Madhusudan Thakkar

In Reply to Raj Pradhan 6 years ago

This is precisely my point.The feature of "COVER CONTINUANCE" is good for policy holders.There are many "LIMITED PREMIUM PAYMENT" plans in traditional plans also.Furthermore there are also some plans where life cover continues up to 100 years even when policies have matured.So why this discrimination for ULIPs?.The basic features of ULIPs should be FLEXIBILITY,LIQUIDITY and TRANSPARENCY.The new rule of IRDA is muddle-headed and feeble- minded.HDFC Life and Max New York Life example should be followed by other companies also.

Raj Pradhan

In Reply to Madhusudan Thakkar 6 years ago

I agree

Hero Honda executes licensing pact with Honda Motors

Mumbai: Hero Honda Motors today said it has executed a final binding licensing agreement with Japan's Honda Motor Company. The agreement paves the way for the Japanese company to exit Hero Honda Motors, its joint venture (JV) with the Munjals-promoted Hero Group, reports PTI.

The agreement pertains to the existing and new products that Hero Honda Motors will offer in the Indian market once the sale of the Japanese firm's stake to Hero Group is concluded.

Hero Honda is a 26-year-old JV between the Hero Group and Honda Motor Co, with each partner holding a 26% stake. As per their agreement, the Hero Group will buy Honda Motor's 26% stake in Hero Honda.

The licensing agreement, which was executed last week, is in line with the memorandum of understanding (MoU) approved by their respective boards of directors on 16 December 2010, Hero Honda Motors said in a filing to the Bombay Stock Exchange (BSE).

Meanwhile, shares of Hero Honda were trading at Rs1,746.50 on the BSE, down 0.54% from the previous close, in early trade today.


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