Premium Allocation ChargeThis would make you think there are NO commissions because this is usually in "Policy Allocation Charge", which is zero for this policy?No premium allocation charge is deducted from your policy premium so all of your policy premium will be invested in the investment funds of your choice. For top-up premiums, we will first deduct a 2% premium allocation charge and then invest the remaining 98% in the investment funds of your choice.
Fund Management Charge
The daily unit price of each investment fund is adjusted to reflect the fund management charge. Currently the charge is 1.00% per annum for Protector, Builder and 1.25% per annum for Enhancer, but we may increase this charge in any time in the future subject to a maximum of 1.50% per annum.
Policy Administration Charge
The policy administration charge will be deducted monthly by canceling units proportionately from each investment fund you have at that time. The annual rate per 1000 of Basic Sum Assured is shown in Schedule B. We may increase this charge at any time after the 4th policy year, subject to a maximum increase of 5% per annum since inception.
Wrong.
They just moved the stuff around, and earlier where it would clearly be highway robbery (35% premium allocation charge etc.) now it's highway robbery by a guy in a suit and tie.
Let's look closely at the "Policy Administration Charge". In most other cases, this refers to a Rs. 40 to Rs. 100 per month fixed charge. But not in this plan. The "Schedule B" is a confusing table like this:
(Basic Sum Assured is per 1000 of Guaranteed Maturity Benefit. Policy Administration Charge - annual rate per 1000 of Basic Sum Assured)
How is the policy administration calculated? First, we get the Basic Sum Assured.
My friend had a plan with "guaranteed" benefit of 11.76 lakhs, for 20 years. He pays a premium of 48,000 a year. For that amount and the "100% guaranteed option" he comes in Band 4 (just under 12 lakhs). The Basic Sum Assured is Rs. 590 per 1000, which for his guaranteed amount is Rs. 693,840.
Note that this is the real insurance - the real "guarantee" is only at maturity. The actual amount they will pay if you die, is the basic sum assured plus about your premiums minus charges, with a 3% return. That's not much, as we will soon see.
Then, for this basic sum assured, you get the policy admin charge for Band 4, 20 year term. This is 2.98. And the first three years has a charge of 12.91. For the first year it adds up to 15.89, per 1000 of basic sum assured. For the 693.84K my friend had, it would be Rs. 11,025 per year.
Remember, he pays Rs. 48K a year as premium. He pays 11,025 as "policy admin charge" - a nearly 25% cut, this is going straight to the advisors pocket as commission. My friend just went from 0% commission to 25% commission.
(That's the first three years. After that it's 3% a year, still higher than mutual funds!)
And it's not easy, as you can see, to calculate what one would really pay. Get to a basic sum assured, find your "band", divide and multiply and do second level calculus and jump though three fire hoops before getting to the actual charge. (I exaggerate, but you get the point) For anyone with only a fleeting interest in finance, this policy can be easily missold. And it's likely even advisors don't understand this enough - but I believe they act to get the max commission in most cases. Either ways, the policy details are obfuscated, and likely deliberately, just to avoid customers instantly realizing the "obscene" commissions that such ULIPs charge. This is sophisticated highway robbery, with a smile.
Death to all ULIPs. Please do not buy them. If you have them, find the right time, and ditch them. Buy a term plan only.
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>Hi Deepak,
Very well drafted explanation of day light robbery.
I read ur blog everyday as well as follow you on twitter.
I am looking out for insurance plan, do I buy term insurance at low cost and invest remaining in Mutual Fund as well as Gold ETF.
05.26.09 at 6:01 AM
>The analysis on these products are great, need to keep them honest.
05.26.09 at 6:11 AM
>Hi Deepak,
Excellent analysis. Is there a way to complain to IRDA now that I have bought a ULIP and realized that I have been made a perfect ass? I am outside the free look period. Also, sites like CNBC too have started promoting ULIP related programs — is there a way to contribute to this wide scale value destroying product?
Jyothi
05.26.09 at 6:20 PM
>Hi Deepak,
Looks like we are coming out of recession. Do you think, it is right time for long term investors to invest in India stock market. Please give us your thoughts on recent rally and course of action for long term investors.
05.26.09 at 9:18 PM
>dear all,
this is very very true.every word is valid.irda is corrupt.you will not believe ,if you check their other ulip,SARALJEEVAN, is really a kill.one lac rs oneyear agois 30 thousands only as on today(FUND VALUE)
thanks
06.09.09 at 4:01 PM
>Hi Deepak,
I understand that this is new way of robbery in place by Dream plan.
However, this plan seems to offer something unique in place – which no other plans can match. Can you please review this and enlighten us? If we search the web about this plan, a number of blog posts indicate about this – but what we're missing is a detailed / honest evaluation by you.
The jargons here are pretty confusing for normal person but general thinking with this plan is – it offers both returns and insurance at a very low premium, which no other plan combination provide.
So if you go to illustration page, and enter all basic info plus guaranteed maturity benefit + enhanced sum assured and get a quote, you'll see that the premium is very low [compared to real crap ULIPs] though a bit high than conventional term plans. For eg. 28y GMB of 100000, term 25 yrs, Enchancer 100%, Guaranteed Maturity Option 100%, Basic Sum Assured 54,100, Enhanced Sum Assured 10lack, Total Sum Assured = 1,054,100, the annual policy premium comes around 5,500. The term policy premium for the same would be around 3.5k I think. So if you could get a master illustration with this ULIP plan vs MF + Term sample, we may be able to find more details about it.
There are more stuff about this plan in the website – e.g. it pays fund value + SA instead of whichever is higher like other plans in case of death.
I don't know how the friend in your example got 48k premium for 11 lack SA, probably the agent really hammered around the plan settings and tweaked to get maximum benefit for him.
08.11.09 at 1:04 PM
>Govardhan: If you enter the details I mentioned (25y, 11.76L Guaranteed, 100% enhancer, no enhanced sum assured etc.) you will see the figures I speak about. No doubt the agent squeezed the maximum.
With the plan you mention – remember that "enhanced" sum assured is not guaranteed. So that's like a term plan with return of some premium. I don't know if the charges are included but the illustration shows a guaranteed return of about 102K, for a 25 year plan. You can get slightly more with a 6% return. But now let's compare it to a term plan.
The term plan by Birla itself costs you Rs. 2000 less. That 2K if invested in an MF at about the same return gives you about 116K.
The BSLI plan illustration says 127K at 6% return. But the slightly extra return is just about the same as putting your money in a "term plan with return of premium" with the same kind of conditions – they can raise charges anytime, they don't provide partial withdrawals above certain limits etc. Plus your mortality charges increase with age, unlike a regular term plan.
Overall it's akin to a term plan, but let's then look at their new "high net worth" term plan.
For 11,250 a year, a male smoker of 28 yrs can get a cover of 50 lakhs! That's like 5x the cover, for 2x the dream plan premium, and even lesser premium if you are a non smoker or a woman.
Btw, a 50L cover for the dream plan with just 75K "guaranteed" costs 40K a year.
Term plans just rock, with investment using mutual funds or other avenues.
08.11.09 at 9:03 PM
>Yes the Enhanced Sum Assured is not guaranteed. But there is something much more we can do with Enhanced SA. And it seems to have no match when we increase the Enhanced SA.
Suppose in our example, we put the Enhanced SA as 15 lakhs instead of 10 lakhs and change the GMB to 75000 [its minimum for 100% option] for a 30yr Male. Now the illustration would be:
GMB = 75k
Basic SA = 40,575
Enhanced SA = 15 lakhs
Total SA = 15,40,575
Enchancer = 100%
Premium = 5,530.50
If we try to match this with our Term + MF for 15 lakh insurance coverage, the premium would be 5k and the left amount would be just 530. The 6% return for this for 25 years would be 30k odd whereas 10% return would be 57k. We can keep increasing the Enhanced SA and premium would be increasing a bit proportionately.
In Illustration sample, we'll have 75k guaranteed, for 6% returns it comes around Rs.98,327 and for 10% its Rs.182,379.
The 50 L cover for HNI just 11k doesn't surprise me as Insurance companies started slashing premium rates for even 1 crore life cover. See:
http://economictimes.indiatimes.com/quickiearticleshow/4797031.cms
Anyway, let us take the example of those middle class families who in general may require insurance cover of 15 to 20 L. In 50L example, the premium with this "dream" approach would be 12k odd with 6% returns fetching 110,354 and 10% returns totals to 213,777 .
One more thing about this plan is, as per their website… Death Benefit: The basic sum assured plus the enhanced sum assured plus the greater of Fund Value and Guaranteed Fund Value.
- This is way above the normal ULIP funda we have, higher of the fund value or SA…!
I don't believe in ULIPs either – after getting squeezed by close relatives in early-investment-days and eventually realizing the mistake ad correcting/stopping all of them … after reading your articles about those. But this ULIP has surprised me [when someone came up with this as a last resort after trying to push through other "niche" ULIPs]. Nonetheless someone has applied smarter approach for this product to get nice benefit for the agent plus some benefit [hope so?] for the insured.
The IRDA is already ordered to revise the commission fee structue soon, so this plan may no longer be in force for fresh policies. Questions may arise saying – what if Birla goes bankrupt, but I believe IRDA has done enough checks to make sure that the insurance companies are framed and act according to solvency ratio….
I've not taken this policy yet and have been evaluating, but since there were no other single product to compare, couldn't evaluate properly at all.
Any further thoughts?
08.12.09 at 6:40 AM
>Govardhan: Good points, and your approach makes sense versus their other term plans. I got the dream plan premium wrong – even for the 50 lakh version, I can see the premium is only 12.1K (which is only about 1K higher than the high networth plan)
One thing I am not sure about is if they have included all costs but since the costs are linked to the basic sum assured, you won't pay much. As a term plan this looks like a good buy.
The returns on the cash invested are not much at all, after 25 years these amounts will be small. But it's good to have some money returned while getting a very low cost insurance cover!
Now the thing is whether they are okay issuing a much larger enhanced s.a. while having a very low guaranteed amount. But if you get that out of the way there's no reason why this plan should not be considered.
08.12.09 at 10:59 AM
>dear all,
welcome to the board!
thanks for this service,i regularly visit this site and very happy for the association.
DREAM PLAN=1.GMB is payable at maturity only or end of the term of policy.i.e 10, 15 or 2o policy years.if you surrender in between or partial withdrawals are made NO guareenty is available.
2.kindly check policy admn. charges which are the HIGHEST in the present market.3. also check the fund value of this policy.
heavy loss!!!
do not compare with term plan.
stay away from this company.
thanks again
09.22.09 at 11:48 AM