Have you often felt your traditional insurance policy isn’t earning you any returns? Or that your ULIP is actually not providing you adequate life cover? Here is the latest version of the Variable Insurance Plan that lets you invest and insure as per your specific needs. Known as the Universal Insurance Plan until recently, the Variable Insurance plan follows the guidelines laid out by IRDA in Dec 2010. Here is a peak into what exactly this plan has to offer for investors.
What is Variable Insurance Plan?
A Variable Insurance Plan offers a combination of investment and insurance in one single plan, just like Unit Linked Plans. What makes it different though, is that it lets you vary the ratio of the mortality and the savings component. In other words, it provides a flexibility to increase or decrease your sum assured, along with corresponding changes in the investment component, in case of any changes in your circumstances. Returns are declared on a yearly basis and not linked to the stock market, thus guaranteeing some earning for the investor.
The plan lets you alter the sum assured and the savings ratio. For example, let us suppose you have changes in your financial and social circumstances and you feel the need to increase/ decrease your sum assured. The plan lets you do so, with a corresponding decrease/ increase in the savings component. The premium however cannot be changed during the policy tenure.
- Benefits and Guaranteed Minimum Returns
The plan has a guaranteed death benefit and a partly guaranteed maturity benefit. The maturity benefit consists of a guaranteed interest rate, called guaranteed minimum floor rate, which is fixed through the term of the policy. In addition to this, a bonus may be declared by the insurance company (in case of participating policies) or an additional interest rate (for non-participating policies) every year.
- Risk Cover
The minimum sum assured is Rs 50,000 or 10 times the annualized premium, whichever is higher, for those below 45 years. Above this age, the maximum is Rs 50,000 or 7 times the annualized premium.
- Convenient Fund Options
Premiums could be invested in underlying portfolios which offer different levels of risk and growth potential. One could invest in equities, bonds, money market or a combination of all.
- Policy Lapse
The plan does not lapse if you fail to pay the premiums, if, the premiums paid till date are as per the policy requirements.
- Top up option
Top up premiums could be paid, without any increase in risk cover, to the extent of total basic premiums. In case you opt for a onetime top-up, a maximum of up to 3%may be deducted as charges.
- Loan Option
A loan amount of not more than 60% of the balance may be provided by insurers.
- No partial withdrawals
- Plans do not have riders.
- High cost of premiums- IRDA guidelines have capped the maximum expenses at 35% of the first-year premium, 7.5% and 5% for the second and third-year premiums, respectively.
- Returns are generally lower than ULIPs as they primarily invest in fixed income securities.
Variable Insurance Plan Products
- SBI’s Flexi Smart Insurance
SBI’s Flexi Smart insurance is a variable non-participating plan, with the flexibility to change sum assured. It aims at providing a life cover plus stable returns by offering non-market linked funds.
- LIC Bima Account
LIC’s Bima Account Plan is by far one of the most transparent and simplest of plans. It offers investor assured returns, bonus plus the flexibility of varying the sum assured. The Bima Account comes in two versions Bima Account I and Bima Account II. The prime difference between the two is that Bima Account I does not require you to undergo a medical examination.
Who Should Invest in the Variable Insurance Plan?
Of course the drawbacks do make the plan lose some of its shine. Nevertheless, it could be stressed that the flexibility offered by the plan, make it an ideal option for risk averse investors and for those with unsteady jobs and incomes.