ULIP : Unit Linked Insurance Plan.It is a product offered by insurance company which gives investor both insurance and investment under a single integrated plan.
Will : legal declaration of how a person wish his/her possession to be disposed after their death
Fund : An amount of money saved or collected for a particular purpose
Return : Profit or loss derived from an investment
Investor : An investor is any party that makes an investment.
It is a type of pure insurance plan where the beneficiary will get the benefit only in case of death of the policy holder during the policy term.
Unit Linked Insurance Plans are the type of insurance where part of your money is invested in units that represent Shares and debt instruments and the remaining is used for your premium.
Amount paid to the insurance company for the purpose of the person's insurance.
Wealth is accumulation of resources or as on date value of assets a person own. Commonly Net worth is the measure of Wealth of an individual.
Unit Linked Insurance Plans (ULIPs) have always been popular among people. They have some attention grabbing features such as:
- They combine the advantages of investment and insurance in a single plan.
- The benefit of Life Cover.
As a result, your money is expected to grow, plus the future of your loved ones will remain protected from the unexpected turns of life.
With time, there have been significant improvements in ULIPs. Each new ULIP is coming up with innovative features and benefits.
In this article, we will review the ICICI Prudential Signature Plan. Read on and find out whether it holds any major benefit for you or not!
Table of Content:
1. Key pros and cons of ULIPs
- Premium allocation charge
- Fund management charge
- Policy administration charge
- Mortality charges
- Discontinuance charges
2. Highlights of ICICI Prudential Signature plan
3. ICICI Prudential Signature: Special Features and Benefits
4. Charges under ICICI Prudential Signature Plan
Key Pros and Cons of ULIPs
1. Control over your Investment:
You will have control of your invested money in the ways given below
- Fund Switch: With this option, it is possible to move your money between equity, balanced and debt funds.
In ICICI Prudential Signature plan you will have this benefit to suit your investment needs.
- Premium Redirection: With this option, it is possible to invest your future premium in a different fund of your choice.
- Partial Withdrawal: It is an option where you can withdraw a part of your money but it comes with certain restrictions with different ULIPs.
2. Significant Tax Benefits:
Let us review what are the tax benefits offered by ICICI Prudential Signature Plan.
- Investments in ULIPs are Tax-Free for the income up to Rs. 1.5 Lacs per annum.
- All the maturity proceeds of the ULIPs are also exempt from tax, under the conditions mentioned under Section 10(10D) of the income tax act.
- In case of the death of ULIP investor, the amount received on death will be exempt from tax, through the death benefits of the Ulip policy.
- Also, if you want to switch your ULIP fund with another, it does not attract any tax.
ICICI Prudential Signature Plan consists of all the tax benefits, listed above.
3. More benefits in long term investments:
Depends on the policy you choose, it will have it’s specific rewards and bonuses, such as; wealth boosters, loyalty additions, etc. this way your money will grow further.
1. The biggest disadvantage of ULIP is that the returns are not guaranteed. For eg, if you have chosen a ULIP that invest a large portion of money in equity stocks, and if the shares are not doing well, then the chances of losing money are inevitable.
2. Returns are poor because there are multiple charges associated with this scheme, such as mortality charges, annual maintenance charges, administration charges and so on.
These charges bring down the returns significantly. In the first year itself, as high as 5% of the money is lost in paying these charges.
3. Lock-in period of 5 years, it makes the investor difficult to come out of the policy and discontinuance charge is high for many ULIPs.
Highlights of ICICI Prudential Signature plan
ICICI Prudential Signature scheme comes with 3 plans for investment. Let’s review what are all the benefits you will receive with the plan of your choice:
1. ICICI Prudential Signature scheme: Advantage Plan
- Annualized Premium: Min: Rs. 2,00,000 and Max: Rs. 4,99,999
- Benefits: Return of all Premium Allocation Charges + Wealth Boosters (described in the next section)
2. ICICI Prudential Signature scheme: Premier Plan
- Annualized Premium: Min: Rs. 5,00,000 and Max: Rs. 9,99,999
- Benefits: Return of all Premium Allocation Charges + Wealth Boosters + Value Benefit in year 2.
Now, let’s know more about these benefits:
➢ The purpose of Wealth Boosters is wealth creation by allocating extra units to your policy at the end of every 5th policy year starting from the end of 10th policy year till the end of your policy term. As given in the description below, based on your term of Premium Payment:
Small fraction percentage of your average fund value gets added as the number of years increases after 5 years.
➢ Return on Premium Allocation Charges: The total of Premium Allocation Charges (as described in the subsequent section) deducted in the policy will be added back to the Fund Value at the end of the 10th policy year.
The same amount will be added again at the end of every 5th policy year thereafter. So, the longer you stay in the policy, the more value will be added to your corpus!
➢ Value benefit is useful in creating more benefits and value in your investment. For example, 5% of your annual premium will be added to your fund value as the extra units on the receipt of 2nd-year premium, if you choose Premier Plan. It is further explained in the example below:
Mr. Shroff is 35 years old and invested in ICICI Pru Signature Premium Plan, with below details:
- Policy term: 30 years
- Premium to be invested: Rs. 5 Lacs per annum
- Premium payment term: 7 years
Now, soon after 2nd year, Mr. Shroff will get the ‘value benefit’ of Rs. 25,000, that will be added to his policy fund value.
At the end of 10 years, Mr. Shroff will get the Total Premium Allocation Charge of Rs. 1,75,000, that will further get added to his policy fund value.
3. ICICI Prudential Signature scheme: Exclusive Plan
- Annualized Premium: Amount: Rs. 10,00,000 and more.
- Benefits: Return of all premium allocation charges + Wealth Boosters + Value Benefit in year 2 + Value Benefit in year 6
The Exclusive Plan has all the benefits of the Premium Plan, as described above. In addition, it provides the value benefit in 6th year. Let’s take an example:
If Mr. Shroff in the previous example chooses to invest the premium of Rs. 10 Lacs per annum in an exclusive plan, with the policy term of 30 years and premium payment term of 7 years.
Then after the payment of 2nd and 6th-year premium, Mr. Shroff will get Rs. 50,000 added to his fund value.
At the end of 10 years, he will get back the Total Premium Allocation Charge of Rs. 3,50,000 added to his policy fund value.
The same amount gets added every 5 years until the end of the policy term.
ICICI Prudential Signature Plan: Special Features and Benefits
1. Premium Payment Term
|Premium Payment Option||remium Payment Term||Policy Term (in Years)|
|Limited Pay||5,7 and 10 years||10-30|
|Regular Pay||Same as the Policy term||10-30|
For whole life plan, the premium payment option is through Limited pay at 7th, 10th and 15th year.
Minimum Premium Amount: Rs. 2,00,000 p.a.
Maximum Premium Amount: Unlimited
Premium Payment Modes: Single, yearly, half-yearly and monthly
2. Life Cover
It is applicable for the entire policy term, to provide security to your family even in your absence.
In case of unfortunate death of the policy-holder during the term of the policy, the nominee will receive the Death Benefits. Death Benefit would be the highest among:
➢ Sum Assured
➢ Fund Value, or
➢ Minimum Death Benefit 105% of the total premiums paid
3. Systematic Withdrawal Plan and Partial Withdrawal Benefits
This facility allows you to withdraw a pre-determined percentage of your fund value regularly, under the conditions, given below:
- Systematic Withdrawal Plan is allowed only after the first five policy years.
- The payouts may be taken monthly, quarterly, half-yearly or yearly, on 1st or 15th date of a month.
- This facility can be opted at policy inception or anytime during the policy term. You may modify or opt-out of the facility by notifying your branch manager.
- The maximum amount of withdrawals in a year should not exceed 20% of the Fund Value.
Systematic Withdrawal Plan can be used simultaneously with Partial Withdrawal benefits, which is designed to help you provide liquidity so that any immediate financial need can be met.
Partial Withdrawal can be availed after the completion of 5 policy years, provided that the money is not in the Discontinued Policy(DP) Fund.
With partial withdrawal benefits, you can make an unlimited number of Partial Withdrawals and they are free of cost.
4. Whole Life Policy Term
For Whole Life policy term option, policy term will be equal to 99 minus Age at entry.
For example, if you take this policy when you are 64 years old, then the policy term will be 99-64=35 years.
Maximum age of entry in this policy is 65 years under Limited and Regular Pay. And, 70 years under Single Pay.
Maturity age of whole life policy term is 99 Years.
An assured sum of whole life policy is defined in next section.
5. Assured Sum by ICICI Prudential Signature Plan:
Charges under the ICICI Prudential Signature Plan
1. Premium Allocation Charges
This charge is expressed as a percentage of the premium and it is deducted from the premium amount at the time of premium payment.
They are initial expenses at the time of policy issuance, such as underwriting, agent’s commission, medical expenses, etc.
It depends on:
- Premium Payment Option: Such as – ‘Single Pay’ and ‘Limited and Regular pay’.
For Single pay, the charges are fixed at 3%.
Limited and Regular Pay option varies with the mode of payment.
- The chosen mode of payment towards premium: Annual or non-annual.
If the payment mode is Annual, charges are levied as given below:
|1st Year to 7th Year||8th and 9th Year||10th Year||More than 10 Years|
|1st Year||2nd Year||3rd-7th Year||8th and 9th Yr.||10th Year||10+ Years|
Allocation charges of 2% are applicable for top-ups.
The total of Premium Allocation Charges (excluding Top-up premium allocation charges) deducted in the policy net of taxes will be added back to the Fund Value at the end of the 10th policy year.
The same amount will be added again to the Fund Value at the end of every 5th policy year thereafter. Percentage addition of annualized premium is given below with the premium payment term:
|Premium Payment Term||5 Years||7 Years||10+ Years|
|Addition as a % of one annualized Premium||25%||35%||40%|
2. Fund Management Charge
They are typically charged as 1.35% of the fund value at per annum basis. However, if the monies are in the Discontinued Policy Fund, a Fund Management Charge of 0.50% p.a. will apply.
3. Public administration Charge
- For Single Pay option: Cost is Rs. 60 per month for the first 5 policy years.
- For Limited and regular pay option: Cost is 0.183% of the annual premium to be payable per month, subject to the maximum of Rs. 500/-.
This charge will be charged throughout the policy term!
4. Mortality Charge
Let’s figure out, how mortality charges can be made?
Mortality charges will be levied every month by the redemption of units based on the Sum at Risk. And, the sum at risk equal to the highest of Sum Assured, minimum death benefits, and Fund Value.
Indicative annual charges per thousand life cover for a healthy male and female life are as shown below:
That is, if a 30-year-old male has taken the life cover of Rs. 10 Lacs, then he will be paying Rs. 1060. It increases with age.
5. Discontinuance Charge: Coming out of the policy
These charges are described below:
If you surrender the policy during the first five policy years, your money will be transferred to Discontinued Policy (DP) Fund after deduction of applicable Discontinuance Charge.
How to cancel the ICICI Prudential Signature Plan during the free lookin Period?
You have got 15 days time to review the ICICI Prudential Signature Plan original policy document from the date of its receipt. If you find the policy terms and conditions are not satisfying, you can return the policy for cancellation. Then you will be eligible to get a refund.
You can cancel your policy withing the free lock-in period, by filling up this form and submit it to any of the ICICI Prudential Insurance branches.
Analysis & Review of ICICI Prudential Signature Plan
ICICI Pru Signature contains all top-notched benefits, that any ULIP holder is desired to have. If you choose to invest in ULIPs, ICICI Pru Signature Plan is recommended.
There are better alternative investment options available…
Instead of investing in this plan, you can consider choosing the combination of Mutual Fund and Term Policy for much better returns and more flexibility and control over your investments.
The combination of Mutual Fund and Term Policy contains all the benefits of ULIPs such as Fund Switching, Partial Withdrawal, All tax benefits, and more benefits in Long-Term Investments.
Apart from having all these benefits, the combination of Mutual Fund and Term Insurance also overcomes the limitations of ULIPs. Let’s discover some of the major distinguishing features:
1. Returns of ULIP as compared to Mutual Funds: Who is better?
Whether the returns of ULIP are lower than the returns of Mutual Fund or higher? Let’s find out by taking the below example:
If someone chooses to invest in ICICI Prudential Signature Plan with the details given in the description below:
The assumed returns will lie between 4% and 8%, with an assured sum of Rs. 20,00,000 as displayed above.
However, the same amount of investment in Mutual Funds will reap the returns between 12%-15%. And, the fund value at maturity may reach much beyond Rs. 38,00,000!!
As you can notice from the above example, the returns of Mutual Funds are way higher than ULIPs.
2. Who is more Goal focused? Mutual Funds or ULIPs!
The Financial goals are the basic building block of any Financial Plan. Through any ULIP it is practically impossible to achieve any financial goal, due to their fixed lock-in periods and lesser returns in investments.
But, with Mutual Funds, you can list your short term (2-5 years) and long term (7+ years) goals and invest accordingly in the right scheme, where you will be benefitted by Higher Returns as compared to ULIPs.
This way, the investments in Mutual Funds provides a more focused and goal-oriented approach. For more details, read the 5-Steps Financial Planning Guide for beginners.
3. Fixed Lock-in Period
In ICICI Prudential Signature Plan there is a fixed lock-in period of 5 years and cancellation charges are significantly high as mentioned in the previous section.
But, If you want to cancel and come out from any Mutual Fund Scheme at any time, you can do so at the much lower cost as compared to ULIPs in the first year.
There are no cancellation charges in Mutual Funds from 1 year onwards.
4. Competitiveness of Fund managers: Mutual Fund Vs. ULIP!
Fund managers who are involved in managing Mutual Funds have a strong pressure to perform the best among their various competitors. Otherwise, investors may withhold their SIPs and invest in other mutual fund schemes, withdrawal of SIP may lead to the bad reputation of any scheme!
This competitive nature of work tends to maximize the profitability of the Mutual Funds significantly.
But with ULIPs there is no such pressure among their Fund Managers, as the returns are lower, plus there is 5 years of the lock-in period.
Therefore, the fund managers handling Mutual Funds are highly competitive as compared to their ULIP counterparts.
5. Affordability of Insurance: Term Insurance Vs. ULIPs
Your investment in ULIP is divided among Insurance and Investment, you can choose to pay as a single payment or on a monthly basis. And the minimum premium amount is Rs. 2 Lacs per annum!
Existing Term Insurance plans come with much affordable price as compared to the ULIPs and provides the same amount of benefits. For more details about the Best Life Insurance policy, you can read this Cheat Sheet to select the best term insurance plan for you.
Though you are investing in 2 different schemes to get the benefits provided by a single ULIP. But you will experience way better returns in the combination of Mutual Fund and Term Insurance as compared to ULIPs and you will have more control over your investments.
Final Verdict: Should you invest in ICICI Pru Signature Plan?
If you are looking for a good ULIP, ICICI Prudential Signature Plan is truly a good option for you. Provided that you are aware of the other investment opportunities as discussed in our comparative analysis with the combination of Mutual Fund and Term Insurance Policy, in the previous section.
Investment in the combination of Mutual Funds and Term Insurance policies can take away the limitations of any ULIP, including ICICI Pru Signature Plan.
For more details on your best-personalized investment plan, you can book your FREE Consultation call with us, by clicking the link below: