Birla Sun Life has launched an innovative ULIP. It is a combination of the highest NAV concept along with entry at lowest NAV of that year. How long will it be before other insurers copy it? Will investors really benefit with this unique approach?
Birla Sun Life Foresight is a new concept that combines an offer of highest NAV (net asset value) approach along with an offer of entry at the lowest NAV of that year to attract the conservative investor. It surely is a unique approach, but investors need to understand the concept before jumping to buy the policy. The concept is applicable only when premiums are paid for five years and the policy remains in force for the policy term of 10 years. It is not going to perform any worse than a 'regular' highest NAV ULIP (unit-linked insurance plan), but the gains will also be limited due to high exposure to debt just like in a highest NAV ULIP. The highest NAV plan is not for those interested in good returns from their insurance.
The highest NAV part is the same as other products wherein the policyholder gets the highest NAV recorded on any day in seven years (say, the 1st calculation). The lowest NAV concept is a separate calculation made for five years wherein the premiums are invested with the lowest NAV of that year. This is to give policyholders the cheapest entry point of the year for their premium. The highest NAV in five years is used to calculate gains with respect to lowest NAV entry of each year for the premium paid (say 2nd calculation). We cannot assume that this 2nd calculation will yield more money than the 1st calculation. This is simply because the duration for the 2nd calculation is five years and 1st calculation is seven years. An investment that is mostly in debt funds will increase its NAV over time. The maturity value at the end of policy term of 10 years is greater of the above two calculations (1st calculation and 2nd calculation) or fund value at the end of the policy.
On 25th February, Moneylife received an email from a reader who explained her interaction with a Birla Sunlife agent regarding this plan. We assume agents had already started sales even though the official launch of this product was only on 3rd March. The reader mentioned about the highest NAV in seven years combined with the lowest NAV for entry in that year. This is how mis-selling may happen. It is not seven, but five years.
Moneylife explained the highest NAV concept in a cover story, "What is the right life insurance" (22 April 2010) and why these policies are not the best options. (What is the Right Life Insurance?).
The most important point to understand is that insurance companies are guaranteeing NAVs and not returns! Are the two different? Yes. The NAV is a number at a point in time, whereas returns happen over a period of time. For instance, your 10-year plan may have hit an NAV of Rs14 after five years. At that point, it is the highest NAV. This Rs14 is guaranteed for the next five years. What if the NAV remains at Rs14 for the next four years, or goes down to Rs13? You would still get this NAV of Rs14. But Rs14 happens to be just 4% over 10 years!
Birla Sun Life Foresight plan has self-managed and guaranteed options (concept explained above). In the self-managed option, the policyholder has 10 options of varying debt/equity ratio to choose from. The maximum equity exposure is 80% to 100%. The policyholder can switch between different options. Consistent with other highest NAV plans, the insurer reserves the right to have investments in different instruments (debt, equity) in proportion of 0% to 100% for the guaranteed option.
The policyholder can switch from guaranteed option to self-managed option, but not vice-versa. In that case the policyholder loses the guaranteed benefit.
The minimum premium for the Foresight plan is a hefty Rs2lakh for a single premium or Rs1 lakh for regular premium of 5-pay. The policy term is 10 years.
The premium allocation charge (PAC) is 5% of the premium. There is no policy administration charge. There is a fund management charge of 1% to 1.35% p.a. of the fund value and an investment guarantee charge of 0.25% p.a. (single premium) or 0.40% p.a. (regular 5-pay). The overall charges are in line with the average charges for other new ULIPs. The mortality charges vary with the age and given in the tables, seem to be on higher side.
On the unfortunate demise of the life insured prior to maturity, the insurer shall pay to the nominee the basic sum assured plus the fund value as of the date of intimation of death.
The minimum sum assured under the regular 5-pay policies for age (at entry) below 45 years is 10 times the annualised premium, while it is 7 times the annualised premium for others. In case of single-premium policies, for age (at entry) below 45 years, the minimum sum assured is 1.25 times the single premium, while it is 1.10 times the single premium for others.
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i took this 5 inst foresight plan with 100k annualy and now in sept 17 it is going to be 7 yrs. i am in need now. pl can someone tell me what i have to do and what i will get.
Any new customer don't go to Brila Sunlifer ULIP.
Take for instance this very article.
No information on how much is the maximum insurance cover that is available to people in various age brackets.
No information on how much would be the probable mortality charges for people in different age groups for the maximum and minimum life cover allowed under this plan. A general indicative table would have been good.
Excessive focus on returns alone is not good while discussing the pros and cons of ULIP. There are several other factors which needs to be brought into picture for really understanding any plan under ULIP.
What r u expecting the insurance co will bear all expances and te customer will get everything?
In any insurance product all the money invested are maintained in the concerned fund and the Insurance company is managing the fund and takes all the charges require to manage it.
If u see as our Govt, insurance companies also make the product publications in such a way the misssellers will enough loopholes to propogate as they want or as the customer want to hear it. so it is alwayas customer who has to understand or misunderstand the product and make his/her decission to buy or not to buy. Every one makes makes tall claims saying this product is best that product is bad, but the fact remains the same if some body wants to buy any product n he or she has to decide it only focussing hes/her needsn goals and affordability and not it is good for someone else.
These type of plans can simply be termed as "ORGANISED LOOT".
If these plans are indeed viable then Mutual funds should launch CLOSE-ENDED schemes as IRDA does not have sufficient experience as far as TRANSPARENCY of funds collected by life insurance companies are concerned.
BTW, I was also told by the sales guy that if you exit the fund early, then you would get back the excess premium you prepaid. E.g., if you leave after the 6th year, you will get back 40% of the premium, since you already paid for the full 10yr.
whaever said and done,everybody has to understand the diffence between guaranteed NAV and guaranteed returns!
while investing even the fund manager also can not say on what NAV the units will be given as the NAV is calculated after taking in to all inflows and outflows(assets and liablities) for the day the inflow of fund will not be taken in to account aaaaaaaafter cut off time. and inflow can not be backdated. so how come this is allowed is it not a fraud? where are the protectors of investors gone?
But can u explain, how u can do it as if the day u invesed say the NAV is RS 14 and the years Lowest NAV is Rs 13 and the Rs 13 nav is applied is it not cheating the other investors who have the investment in the fund?. Further can u explain how two navs can be applicabe for the same day? how this accouting can be transperant?
Your question on transparency is valid. The lowest NAV can happen before your investment date in the year or later. It will have to be separate calculation (similar to 'What if' situation) for five premium payments and highest NAV in five years to get the returns and compare it with other 2 calculations (highest NAV of 7 years or fund value at end of 10 years).
The NAV is declared after taking in to account of all assets and liabilities, Then how can you take inflow on the diferant NAV on the same day. further if you mean to say the units are given on the same day NAV and the units are RE-allocated considering the lowest NAV later, how it is possible it is beyond our imaginations.
Kindly can you explain say today if there are 1 lakh units are in the perticular fund and if you cange this record in to 1.2 lakh units after one year can u imagine the total adjustments and readjustments to be done in calculations if the right value to be deturmined at the end. The units allocated is going to be part of the fund and how it can be changed later and said it is fair for all investors?
It is a feature offered by Birla Sun Life. it is up to them how they manage assets and liab. The fact that this recalculation is for 5 years and policy term for 10 years, should tell you that this new concept may not yield higher value than fund value at end of 10 years considering the NAV will increase over period (if most of funds in debt). The insurer is not offering any free lunch to policyholder.
your points says it is offered by BSL and it is up to them how to mannage it, but why you people are making hue and cry about the ULIP charges and the first year commissions earned by the agents? this is also offered by the insurance companies and it is up to them to run it and if people like it they will buy it is int it?.
Now in this BSL product the marketing people will be saying that you will get the units at lowest NAV and You will ged maturity value at highest NAV and it is gaurenteed all other things are not explained or simply ignored and after some time you people only start makin loud noice of misselling as it will make you all famous.
Regards
Keshav B BhaT
Does this not go against the basic logic of market where we are told that you can never time the market, that you can never catch the low and the high in the market!
Returns and yeilds depends on funds performance which every one understands. The funds are run on behalf of the investors in the fund and u can not give differant NAV for differant individuals on the same day and if given i feel it amounts cheating. As all know years lowest or highest NAV can be given only after the complition of the year, so u mean the mony will be kept idle till the year end as the units can not be allocated? Or r u going to run new fund for each instalment of premium paid?
Units will be allocated based on NAV on that date. I explained that the calculation of entry at lowest NAV will have to be separate calculation if policyholders pays five premiums and stays for 10 years in the policy. At end of policy term (10 years), the (what if?) calculation will have to be made to recalculate the units for each year (5 years) and calculate returns with respect to highest NAV in 5 years.
I can understand what u r trying to tell, but sir, this can be done for a few investments but cal you imagin the calculatins and the readjustments to be done when there are lakhs of investments are there. and if there are not laks of investors are not involved the funds can not run economically and it is the fact that all these ends up few people gaining and majour no of people loosing any way these things can be discussed if people want toavoid or rectify their mistakes but if people want to continue there is no point in looking in to the matter. Good luck