Birla SunLife Dream Plan is a unit-linked insurance plan (ULIP) that provides the double benefit of higher sum assured and guaranteed maturity benefit at a cost lower than the traditional term plan. In addition, it does not carry any premium allocation charges (PAC), probably the only plan in the market with a no-load structure, albeit there is a 2 per cent PAC on top-up premium.

Product highlights

• A ULIP with a term ranging from 5 to 25 years for an individual between 18 to 60 years of age at entry; the maximum age at maturity is 75 years.
• Option to choose Guaranteed Maturity Benefit (GMB) with an upside potential based on the performance of funds chosen. This assures that you will receive no less than the GMB when the plan matures.

Highlights

This is a good alternative for a traditional term plan, and also carries features of a ULIP This is one of the cheapest ULIPs in the market Though it comes with lots of benefits, the charges are a little higher

• Option to choose Guaranteed Maturity Options (GMO), i.e., 100 per cent, 200 per cent and 300 per cent with three separate maturity amount payout schedules
• A minimum guaranteed return of 3 per cent p.a. on the premium paid less other charges
• Partial withdrawals allowed after 3 policy years; it does not affect the GMB.
• Policy surrender allowed after 3 policy years, with maximum payout up to the fund value at that time
• The cheapest ULIP product, with no premium allocation charges

Investment fund options

• The investor has an option to choose from three investment funds – Protector, Builder and Enhancer – as shown in Table 1.

The premium (minus charges) can be invested in any of the fund options or a combination of all three. The three funds follow a balanced approach to investment, and hence can be an ideal choice for investors with low to medium risk appetite.

Charges you pay

• Premium allocation charge

No premium allocation charge is deducted from your premium, except for the 2 per cent charge that is levied on the top-up premium.

• Fund management charge (FMC)

FMC varies from 1 per cent to 1.25 per cent per year with a maximum cap of 1.5 per cent (Table 1).

• Policy administration charge and mortality charge

Policy administration charges are on the higher side. For example, in case of a 20-year policy with a basic sum assured of Rs. 590, the charges will be Rs. 12.91 for the first three years and Rs. 13.23 for the remaining years, compared to the normal charge of Rs. 2 to Rs. 3. Mortality charge is also high as compared to other ULIP plans.

• Surrender and revival charge

Policy revival charge is Rs. 100, which can go up to Rs. 1,000 at the company’s discretion. A surrender charge will be applicable if the policy is returned in the first 3 policy years.

• Other policy charges

Two fund switches, two partial withdrawals and two premium redirections are allowed free per year at an additional cost of Rs. 100, with a maximum cap of Rs. 500 per additional request.

Incentives

1. Maturity benefit

• Guaranteed maturity amount depending upon GMO along with the fund value is paid at the time of maturity.

• A guaranteed return of 3 per cent per annum on net premium is applicable.

2. Death benefit

The nominee will receive basic sum assured, enhanced sum assured plus the higher of Fund Value and Guaranteed Fund Value.

3. The plan offers discounts at higher guaranteed maturity benefit amounts based on different bands.

Performance

Let us find out how this plan fares from its cost-benefit analysis, which is based on certain assumptions. For a 26-year-old male individual with the guaranteed maturity benefit (GMB) of Rs. 75,000, guaranteed maturity option of 300 per cent on GMB and enhanced sum assured of Rs. 50 lakh for a period of 25 years, the net return (gross of mortality charges) comes to 4.25 per cent and 8.24 per cent at an assumed growth rate of 6 per cent and 10 per cent, respectively. These returns are well above the minimum return prescribed by the regulator (i.e., 2.25 per cent for a policy with maturity period of more than 10 years). However, if we exclude the mortality charges, the net return will be negative.

• Table 2 sums up the performance of the three funds as on Sept. 30, 2009.

• In Enhancer fund, 28.44 per cent investment is made in equities. Out of this investment, 25.40 per cent, 13.21 per cent and 11.17 per cent go to banking, oil & gas and capital goods, respectively as the top 3 sectors.
• All three funds (Protector, Builder and Enhancer) have cash allocation, including money market instruments, in the ratio of 18.98 per cent to 11.20 per cent to 17.38 per cent, which may prove to be a boon for the funds in months to come as the market may see some correction in the near term.
• However, the average maturity of debt holdings is 5.14 to 6.72 years which can be fatal in the near term as the market can see unwinding of the monetary policies which will shoot up debt yields, leading to devaluation of the portfolio. Higher the interest rate, lower will be the average duration and debt value, and vice versa.

Equating with other products

A comparative analysis of BSLI Dream Plan with other investment products (Table 3) throws up some interesting facts.

• In case of Dream Plan, for a 30-year-old male individual opting for a GMB of Rs. 75,000 (100 per cent GMO) with an enhanced sum assurance of Rs. 50 lakh, the annual premium comes to Rs. 13,378 for 20 years with a maturity benefit of Rs. 1.82 lakh. The total premium paid in a span of 20 years exceeds the maturity benefit at both assumed interest level of 6 per cent and 10 per cent, thus, giving a net negative return. It happens because most of the premium amount goes in providing insurance cover of Rs 50 lakh. But if he invests in a combination product of PPF and a normal term plan for the same insurance cover of Rs. 50 lakh, his annual premium comes to Rs. 5,200 and the return is 3.39 per cent.
• In BSLI Premium Back Term Plan, the same benefits come at an annual premium of Rs. 42,422 with a maturity benefit of Rs. 8.4 lakh. But the net return is zero.

Tax benefits

• Premium payable under BSLI Dream Plan up to Rs. 1 lakh is eligible for tax benefits under Section 80C.
• Maturity or death proceeds are tax free under Sec 10(10D).

Things to look into

• The plan is preferably for an individual looking for an enhanced basic sum assured.
• The policy administration charge and mortality charge are exorbitantly high.
• Opting for riders will further reduce your return as units will be reduced in proportion to cover the monthly rider premium charge.

Recommendations

• For whom – Conservative investors willing to put money for a longer period
• Risk – Safe capital; maturity benefits linked to market returns
• Investment horizon – 5-25 years
• Returns – More in comparison to customised investment product providing same benefit
• Beats inflation – No, it won’t be able to beat inflation at an assumed growth rate of 6 per cent
• Tax bracket – Preferable for all tax brackets
• Alternatives – Term plan with the return of premium option, PPF with term plan

Summing it up

BSLI Dream Plan is ideal for those who are looking for an enhanced sum assured with moderate maturity benefits (in case of 100 per cent GMO). The other GMOs, i.e., 200 per cent and 300 per cent provide increased maturity benefits but come with high policy administration charges and mortality charges. In our opinion, the overheads are abrupt and the guaranteed 3 per cent return also does not look exciting enough. Moreover, investors can lose the trivial 3 per cent return if premiums are not paid in time.

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