Two policies rolled into one, at a price

New UnitGain Super, a life insurance policy from Bajaj Allianz, comes with just a regular premium option. The minimum annual premium is Rs 25,000 and it can be paid either in one go, or in monthly, quarterly or half-yearly installments.

This policy can be bought by persons in the age bracket of 0-60 year age bracket. Since the minimum term of the policy is 10 years, the maximum age of the policyholder at the time of maturity can be 70 years.

The minimum life cover is the higher of five times the annual premium, or half the policy term multiplied by the annual premium. For example, if you are paying an annual premium of Rs 30,000 for a policy term of 20 years, the minimum life cover will be the higher of Rs 1.5 lakh (Rs 150,000) or Rs 3 lakh, that is, Rs 3 lakh (Rs 300,000). The maximum sum assured depends on the type of optional benefits you have chosen.

There are four categories of premium: Rs 25,000-50,000 comes under the Silver range, Rs 50,000-1 lakh under Gold, Rs 1 lakh-5 lakh (Rs 500,000) under Diamond, and more than Rs 5 lakh under Platinum.

After deciding the premium amount, depending on the cover you want, decide how much risk you want to take. This is a bundled product that gives you an insurance cover along with an investment option.

You have a choice of three paths: the least risky is the Bond Fund, which aims at capital preservation by investing in government securities. Next is the Equity Index Fund II, which invests in NSE Nifty stocks, though not in the same proportion as the Nifty. The third is the Equity Growth Fund, which works like a diversified equity fund that is not restricted to any index. You can put your money in one of these funds or choose a combination.

After deducting premium allocation charges (See: Rs 100 Premium Break-up), the money is routed to the chosen investment funds and you will be allocated units according the current price of the unit, that is the net asset value.

These units will comprise your investment and their value will change according to the performance of the fund, which can be tracked on the company's Web site: http://www.bajajallianzlife.co.in/corporate web/Products/NewUGSuper.asp

You can increase or decrease the premiums. However, the increased premiums (or top-ups, as they are called) should not exceed 25 per cent of the total regular premiums and the reduced premiums should not fall below the minimum premium of Rs 25,000 a year. All the top-ups are locked in for three years from the date of investment.

In case you encounter an unexpected cash crunch, you can partially withdraw cash three years after the policy issue date, if you have paid all the premiums by then. There is also a settlement benefit option, under which you can plan your maturity proceeds for a maximum period of five years. However, you will not get the insurance cover after the term of the policy is over.

The Charges

All the charges apart from premium allocation fees are deducted daily under this policy. Mortality, fund management and policy administration charges are deducted by the proportionate cancellation of NAV units every day.

The expenses incurred in selling the policy, which include agents' commission and the company's expenses, will be deducted directly from the premium as allocation charges, which are 17 per cent, 16.5 per cent, 16 per cent and 14.5 per cent of the premium for the Silver, Gold, Diamond and Platinum range, respectively, in the first year.

These charges, for all the premium categories, fall to 5 per cent in the second and third years, 4 per cent in the fourth and fifth years and 2 per cent from the sixth year onwards.

The money that is left after the deduction of these charges goes into the investment fund. But the costs are not over yet. Mortality charges (fees for providing the life insurance cover) are deducted according to the age of the insured, and fund management charges of 1.75 per cent, 1.25 per cent and 0.95 per cent per annum are deducted from the fund for managing Equity Growth Fund, Equity Index Fund II and Bond Fund, respectively. If the Insurance Regulatory and Development Authority gives approval, these charges might go up to 2.75 per cent, 2.25 per cent and 1.75 per cent for the three funds, respectively.

Apart from this, Rs 50 per month is charged as policy administrative fees for managing the policy; this increases by 5 per cent every year. All the charges, including optional benefits, are deducted every day by cancellation of units. The insured doesn't have to pay extra premium for any of these charges.

Optional benefits

A number of optional benefits are given under this policy. Under the accident death benefit, which comes for Rs 72 per lakh of sum assured, a lump sum is paid if the insured dies in an accident. Under the accident disability benefit, which comes for Rs 64 per lakh of sum assured, the insured gets 50 per cent of the sum assured in case of partial disability and 100 per cent of the sum assured if the disability is total. (per lakh = per 100,000)

The other two optional benefits cover illnesses. The critical illness benefit covers 11 major ailments such as heart attack, cancer and kidney failure and comes for Rs 166 per lakh of sum assured.

For hospital cash benefit rider, you have to pay Rs 41 for every Rs 100 paid out per day of hospitalisation. These two riders will terminate once you make a claim under the critical illness benefit. The other benefits, however, continue. Personal accident, disability and critical illness riders are priced competitively and, the basic policy continues even if you make a claim for any of these riders.

The returns

UnitGain Super, which was re-launched on 10 July 2006, has performed well with two out of three funds performing better than their benchmarks. The Bond and equity index funds are managed internally by the investment team headed by G B Laddha.

The Equity Growth Fund is also managed internally, but fund advice for it is received from DSP Merrill Lynch. Equity Index II, which is benchmarked at Nifty Index, gave annualised returns of 67.35 per cent against the benchmark's 61.90 per cent. Equity Growth fund did not perform well with annualised returns of 54.62 per cent against the benchmark's return of 61.90 per cent. Bond fund annualised returns stood at 8.24 per cent whereas the returns of Crisil's benchmark Bond Index stood at 6.92 per cent.

If the funds grow at 6 per cent, 10 per cent and 14 per cent respectively during policy tenure of 20 years, cumulative annual growth rates, which tells you the real returns after all costs have been taken into account, will be 4 per cent, 8 per cent and 11 per cent, respectively.

All three funds were re-launched with changed names in order to comply with latest IRDA guidelines. Their basic functioning, however, remains the same. UnitGain Super's earlier avtaar had four funds. The annualised returns since the inception of these funds on 23 July 2004, was 64.46 per cent (Equity Plus), 52.70 per cent (Equity Index), 22.64 per cent (Balanced Plus), and 3.58 per cent (Debt fund).

What should you do?

You need to be clear why you are buying this policy. With it you will be bundling your investment and insurance decisions. Also, you will be paying more to enjoy the benefit of bundling. The returns would be lower than what a pure term plus mutual fund approach would yield.

Also, UnitGain Super gives returns that are lower than the average of the top five diversified equity funds' annual return of 74.93 per cent. The advantage lies in the fact that you have the comfort of having one product perform two functions.