Generally, all Life Insurance Policy provides Life Cover for Single Life.
Some Annuity Plan offers Joint Life Cover.
Unit Linked Insurance Plan (ULIP) offers life cover for the policyholder & at the same time invests in market-related instruments.
But, HDFC Classic One Plan offers Life Coverage for two individuals along with market-linked returns.
Will HDFC Classic One Plan provide comprehensive coverage to your family?
A detailed review of HDFC Classic One Plan will surely dig out the answer.
So, let us dive deep into an in-depth analysis.
Table of Contents:
- Maturity Benefit
- Death Benefit
- Loyalty Additions
- Partial Withdrawal
5.)Fund options in the HDFC Classic One Plan
6.)Various Charges under the HDFC Classic One Plan
7.)Free Look period of the HDFC Classic One Plan
8.)Surrendering the HDFC Classic One Plan
9.)Advantages of the HDFC Classic One Plan
10.)Disadvantages of the HDFC Classic One Plan
12.)IRR Analysis of the HDFC Classic One Plan
13.)HDFC Classic One Plan Vs Other Investment Alternatives
14.)HDFC Classic One Plan Vs. Pure Term Insurance + NSC / ELSS
15.)Final Verdict on the HDFC Classic One Plan
What is HDFC Classic One Plan?
HDFC Life Classic One Plan is a Unit Linked, Non-Participating, Life Insurance Plan that comes with a unique option that offers life coverage for two individuals.
Here, the lump sum of 10 times the single premium is offered on the second death of the two lives assured. This plan also offers loyalty additions that will help you boost your overall fund value.
Features of the HDFC Classic One Plan
- Option to choose between Single Life and Joint Life. The relationship between the two policyholders can be the spouse/child/parent/grandparent/co-borrower.
- It is a Single premium policy.
- A life insurance plan with the opportunity to earn market-linked returns.
- Under the Joint life variant, the death benefit would be payable only after both life assured to die. On the first death, the surviving life assured has the option to withdraw the entire fund value (including the top-up fund value) and continue with a full life cover for the rest of the policy term.
- Loyalty Additions will be allocated as extra units at the end of the 10th Policy year to boost your Fund Value provided no Partial Withdrawals have been exercised.
- Flexibility to invest in 11 funds.
- Maturity benefits can be received in instalments.
Eligibility Criteria for the HDFC Classic One Plan
The basic information we need to know to be eligible to enter this plan is mentioned below;
|Age at entry (last birthday)||Single Life||0 years||40 years|
|Joint Life||18 years||80 years|
|Age at maturity (last birthday)||Single Life||18 years||50 years|
|Joint Life||28 years||90 years|
|Single Premium (SP)||For both Joint and Single Life||Rs. 25,000||No limit, subject to underwriting|
|Policy Term||Single Life||10 years||50 minus Age at Entry|
|Joint Life||90 minus Age at Entry|
|Sum Assured||Single Life||1.25 x Single Premium||10 x Single Premium|
|Joint Life||10 x Single Premium|
Benefits under the HDFC Classic One Plan
Single Life Coverage Variant: On survival until maturity, the Fund Value will be paid.
Joint life Coverage Variant: On survival, until maturity of at least one of the lives assured, the Fund Value will be paid.
Single Life Coverage Variant: Sum Assured on death is payable as a lump sum on the death of the life assured during the Policy Term.
Joint life Coverage Variant: Sum Assured on death is payable as a lump sum on the second death of the two lives assured during the Policy Term.
In case of death of one of the lives, the surviving life assured will have an option to either:
- Fully withdraw this amount and continue the policy with the coverage as per the policy provisions,
- Not withdraw any amount and continue the policy with the coverage as per the policy provisions.
Sum Assured on death is the highest of:
- Total Sum Assured Less Partial withdrawals made if any (Total Sum Assured = Basic Sum Assured plus any additional Sum Assured in respect of Top-ups).
- Total Fund Value (Total Fund value = Single Premium Fund Value plus Top-up Premium Fund value).
- 105% of Total premiums paid (including Top-up premiums, if any).
Loyalty Additions will be allocated as extra units at the end of the 10th Policy year provided the policy is in force and no Partial Withdrawals have been exercised.
Loyalty additions will be higher of:
- Total Premium allocation charge and Policy Administration charge deducted from your policy to date.
- 5% of Single Premium.
Partial withdrawal is not allowed in the first five policy years. Post-lock-in, the minimum partial withdrawal amount is Rs. 10,000 & the maximum is 50% of the Single premium.
Fund options in the HDFC Classic One Plan
HDFC Life Classic One Plan gives you an option of 11 different funds to invest your money in. Each fund has its Investment policy, based on asset allocation between equity, debt, and money market instruments.
You can choose either all or a combination of the following funds. Also, you can switch between funds using the fund switch option at any time.
|FUND OPTION||ASSET ALLOCATION||RISK|
|Money Market, cash & deposits||Govt Sec, Fixed Income, Bonds||Equity|
|Discovery Fund||0-10%||0-10%||90-100%||Very High|
|Equity Plus Fund||0-20%||0-20%||80-100%||Very High|
|Diversified Equity Fund||0-40%||0-40%||60-100%||Very High|
|Blue Chip Fund||0-20%||–||80-100%||Very High|
|Opportunities Fund||0-20%||–||80-100%||Very High|
|Balanced Fund||0-20%||0-60%||40-80%||Moderate to High|
|Income Fund||0-20%||80-100%||–||Moderate to High|
|Secured Managed Fund||0-25%||75-100%||Low to Moderate|
|Bond Plus Fund||0-20%||30-100%||0-50%||Moderate to High|
Systematic Transfer Plan:
Apart from choosing your basic fund allocation, you can also choose to avail Systematic Transfer Plan (STP) which gives you the benefits of rupee cost averaging.
You can invest all or some part of your investment in an Income Fund, Bond Fund, or Conservative Fund or Secure Managed Fund and transfer a fixed amount in regular monthly instalments into any one of the following funds: Equity Plus Fund, Diversified Equity Fund, Blue Chip Fund, Opportunities Fund, Discovery Fund or Balanced Fund.
Various Charges under the HDFC Classic One Plan
Premium Allocation Charge:
This charge shall be levied at the time of receipt of the premium as a % of the premium.
Policy Administration Charge:
0.04% per month of the single premium subject to the cap of Rs 500 per month.
Fund Management Charge (FMC):
0.80% p.a. of the Fund Value for Secure Managed Fund and Bond Plus Fund and 1.35% p.a. of the Fund Value for other funds. For the Discontinued Policy Fund, an FMC of 0.50% p.a. is applicable.
The amount of the charge taken each month depends on the age(s) of the life assured, life coverage variant, Sum Assured on death at that point, and Fund Value. In the case of the Joint Life coverage variant, one mortality charge will be charged till the first death and another lower mortality charge will be charged till the second death.
Partial withdrawal charge:
This charge depends on the year you choose to discontinue and your premium amount.
Inference from the charges:
Since it is a single premium policy there are limited charges. Premium Allocation charges & Policy administration Charges are out of line which will pull down your yield in the long run.
Free Look period of the HDFC Classic One Plan
In case you are not satisfied with any of the policy terms and conditions of the HDFC Classic One Plan, you have the option of returning the policy to the company within 15 days. In case, the policy is bought online or through distance marketing, then the free-look period will be extended up to 30 days.
Surrendering the HDFC Classic One Plan
Surrender of policy within the lock-in period – The policyholder has the option to surrender at any time during the lock-in period. Upon receipt of the request for surrender, the fund value, after deducting the applicable discontinuance charges, shall be credited to the discontinued policy fund. On completion of the lock-in period (5 years), the fund value as of date shall be payable.
Surrender of the policy after the lock-in period – The policyholder has the option to surrender the policy at any time after the lock-in period. Upon receipt of the request for surrender, the fund value as of the date of surrender shall be payable.
Advantages of the HDFC Classic One Plan
- Hassle-free investment as it is a single premium policy.
- Top-up premium is also allowed after the lock-in period of 5 years.
- Partial withdrawals are allowed post-lock-in period of 5 years.
- Unlimited free switches are allowed during the settlement period & policy term.
- Rider options enhance the life cover.
- Tax benefit as per Sec 80C & Sec 10(10D)
Disadvantages of the HDFC Classic One Plan
- The lock-in period is 5 years.
- Policy loans are not available for this product.
- They return the Policy Administration charge & Premium Allocation charge in the name of Loyalty addition. There is no real value addition in it.
For further details, you can refer to the HDFC Classic One Policy Brochure.
In HDFC Classic One Plan, the premium is paid only once & on maturity, you get the fund value. The potential return on investment of the plan must be evaluated before investing.
We can calculate the Internal Rate of Return (IRR) using the Benefit illustration given on the HDFC Website. We can also compare the returns with other lumpsum investments to have a better idea.
IRR Analysis of the HDFC Classic One Plan
A 30-year-old male invests Rs. 10 Lakhs as a Lumpsum amount. At the end of the policy term of 10 years, he receives the maturity amount.
The Assumptions for Comparison:
|Sum Assured||Rs.1 Crore|
|Policy term||10 Years|
|Single Premium||Rs. 10 Lakhs|
The assumed future investment return is @4% in the worst-case scenario & @8% in the best-case scenario. These assumed rates of returns are not guaranteed and they are not the upper or lower limits of what you might get back, as the value of the policy is dependent on several factors including future investment performance.
|At 4% p.a.||At 8% p.a.|
|Age||Year||Annualized premium / Maturity benefit||Death benefit||Annualized premium / Maturity benefit||Death benefit|
The IRR for this illustration at the worst-case scenario of 4% works out to be 1.02% & the IRR for the best-case scenario of 8% is 5.03%.
If you invest in any fixed instruments like Bank FD, your yield will be more than HDFC Classic One Plan’s return. The potential return is not beneficial in the long run. The lump sum amount you get as a maturity benefit will not help you to meet your financial goals.
HDFC Classic One Plan Vs Other Investment Alternatives
An investment yield should at least match the rate of inflation in the long run. Otherwise, you are losing the value of money. Since HDFC Classic One Plan’s potential return is not beneficial for an investor, let us look at other Lump sum Investment Options.
In HDFC Classic One Plan, the Sum Assured is Rs. 1 Crore for a 10-year policy term & the single premium is Rs. 10 lakhs. Similarly, we can buy a Pure Term Cover for Rs.1 Crore & the balance amount can be invested to achieve your life’s financial goals.
HDFC Classic One Plan Vs. Pure Term Insurance + NSC / ELSS
Pure Term Insurance for Rs. 1 Crore will cost Rs 59,000 for a 10-year Policy Term. So, the balance amount out of Rs. 10 lakhs can be invested to achieve your life’s financial goals. Here, we have chosen National Saving Certificate (NSC) for Debt Instrument Category & those who are ready to take risks can invest in the ELSS Mutual Funds.
|Pure Term Insurance Policy:|
|Sum Assured||Rs.1 Crore|
|Policy term||10 Years|
|Single Premium||Rs. 59000|
|Balance amount for investment||Rs. 941000|
Both NSC & ELSS have tax benefits (Sec 80C) at the time of investment. Interest accrued in NSC is treated as re-investment & qualifies for tax benefit each year. Only the final year interest is taxed as income from another source.
ELSS fund is taxable only at the time of redemption. For a Holding period of more than 1 year, it is considered a Long-Term Capital Gain (LTCG). LTCG up to Rs. 1 Lakh in a financial year is exempt from tax. Over & above the limit is taxed at 10%.
|Term Insurance + NSC||Term insurance + ELSS|
|Age||Year||Term Insurance premium + NSC||Death benefit||Term Insurance premium + ELSS||Death benefit|
After calculating the tax for the respective investments, the maturity amount has been calculated. The post-tax IRR under the Term insurance & NSC combination works out to be 6.14% & for the Pure term Insurance & ELSS combination, it works out to be 10.58%. This is far better than the HDFC Classic One Plan rate of returns. After paying tax, the NSC yields at least just to catch up with the inflation. ELSS after-tax helps to beat inflation comfortably.
Final Verdict on the HDFC Classic One Plan
HDFC Classic One offers good life cover when compared to other traditional policies that are available in the market. The reason for the low yield is the charges in the ULIP. This makes it unattractive among the other Investment Instruments.
HDFC Classic is a Hassle-free investment, but the potential return is not beneficial for an investor. There are better lumpsum investments that help to combat inflation in the long run.
You can always consult with your Financial Advisor if you need professional guidance for building a diversified portfolio that suits your risk appetite & Life’s Financial Goals.