How Return On Mortality Charge In ULIP Works
Unit Linked Insurance Plans (ULIPs) have emerged as a befitting investment vehicle, post the many significant regulatory reforms introduced between 2010 and 2013. More and more investors are investing in ULIPs for their life goals as the asset class has shown a consistent fund performance record over the long term. Further, charges in new-age ULIPs are capped and spread over a longer time frame, coupled with features such as fund switching, premium redirection in keeping with the changing market reality, and tax benefits have also contributed to the increasing popularity of ULIPs.
Investors today also find ULIPs attractive because they are the only equity-linked investment options that continue to be tax-free. They have been exempt from the Long Term Capital Gain (LTCG) tax introduced in the Union Budget of 2018.
In continuation to the constant evolution of ULIPs for becoming a preferred investment choice for retail investors, Bajaj Allianz Life Insurance has further introduced a unique feature in ULIPs that not only brings down the cost of the product but also enhances the maturity corpus for the investors. The Return of Mortality Charges (RoMC) feature in our new-age ULIP Bajaj Allianz Life Goal Assure is a case in point.
Return of Mortality Charges: Setting new benchmarks
Think of a policyholder who opts for a ` 10-lakh insurance cover with ` 1 lakh as annual premium. Let's suppose, he/she passes away after paying only the third quarterly installment, that is, a total of just ` 75,000. In such a scenario, the insurance company still has to pay his/her survivors the promised life cover of ` 10 lakh.
This is the risk that an insurance company takes for providing you an insurance cover. Mortality charge is the cost of this 'risk' that investors pay to an insurance company. Now, if an insurance company is returning the mortality charges when the policy matures - it is like paying you back from its earnings, and it also means that you will get an enhanced corpus on maturity which includes the mortality charges.
In a first of its kind initiative, we have further enhanced the appeal of ULIPs and made it more investor-friendly by returning the mortality charge, which a policyholder pays during the course of the policy. RoMC has undoubtedly set a new benchmark within the Indian life insurance industry.
Investor-friendly feature
Typically, the overall cost of ULIPs is between 2-4% of the fund value. Within this, the mortality charge is calculated per annum per ` 1,000 life cover, and the rate depends on various factors, including age, sum assured, gender of the policyholder, etc.
Let's understand the benefit of Return of Mortality charges with the following example.
Let's assume a 30-year-old invests `10 lakh every year in Bajaj Allianz Life Goal Assure for a Sum Assured of ` 1 crore. His policy term and premium payment term are for 20 years and he chooses to invest in Pure Stock Fund ll using Investor Selectable Portfolio Strategy. During the 20 year policy term, the mortality charges deducted for providing the insurance cover is `36,883 with assumed rate of return @ 4% or `32,519 with assumed rate of return @ 8% returns. With Bajaj Allianz Life Goal Assure, the policyholder will simply get back this mortality charge when the policy matures at the end of the 20th year. Thus, the investor adds a considerable amount of ` 36,883 or ` 32,519 to his overall fund value on maturity. His Maturity Amount including Return of Life Cover Charges will be:
| Return | Fund Value at Maturity (A) | Return Of Mortality Charges (ROMC) (B) | Maturity Benefit (A+B) |
|---|---|---|---|
| @ 4% | 26,726,270 | 36,883 | 26,763,153 |
| @ 8% | 41,471,383 | 32,519 | 41,503,902 |
Returning the mortality charges back to the investors enhances their maturity corpus and is also a way of rewarding them for staying invested to achieve their life goals.
As we continue to provide more benefits to our policyholders while they are invested with us, we have added one more unique feature in Bajaj Allianz Life Goal Assure called Return Enhancer that further increases their corpus on maturity.
From the above example, if on maturity, the 30-year old male opts to receive the proceeds in instalments (and not a lump sum) over a period of five years, then he gets the benefit of Return Enhancer, which is an addition of 0.5% of each due instalment. Thus, with return Enhancer the investor's fund value increases to ` 2.81 crores @4% from ` 2.67 crores (refer to the above table). Similarly, at 8% returns, the fund value after Return Enhancer increases to ` 4.71 crores from ` 4.15 crores.
Both these benefits in our new-age ULIPs surely make them a more lucrative investment option as they enhance the benefits on maturity, backed by consistent fund performance, thus making ULIPs more investor-friendly in the long term.
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