LIC Flexi Plus

Recommendation

Do not invest in Flexi Plus

Review of LIC Flexi Plus

Flexi Plus is a like the usual Unit Linked Insurance Plan (ULIP). For the premiums you pay you get a tiny insurance cover and also a maturity amount at the end of the term which is generated by investing part of the premiums in a market-linked fund.

Flexi Plus is slightly different from other ulips because it pays maturity benefit irrespective of whether the policyholder survives the chosen term or not. This is what happens: if he survives he gets the value of the fund on maturity date. But if he does not the nominee gets the sum assured and the rest of the premiums supposed to be paid are credited to his account and proceeds from these are paid to the nominee at maturity.

You can view all features at http://www.licindia.in/Flexi_Plus_Features.htm

Being a ULIP, Flexi Plus is not fit for your insurance need (or investment need for that matter). Flexi Plus plan does not have the option for pure equity fund and that is where long term investments-those made for more than 5 years ought to go. You have to choose between the debt plan with zero equity exposure and mixed plan with maximum 25% equity exposure. In any case due to high charges typical of all ulips you cannot expect to get attractive returns from this policy. Premium Allocation Charge is 7.5% in the first year, 5% from second year through to fifth and stays at 3% thereafter. It doesn’t end there; there is Policy Administration Charge, Fund Management Charge, Mortality Charge and Service Tax to pay. All these are first deducted from your premium before they are assigned units in the fund. Since not all your premiums are invested your returns are very less.

Illustration

Your age: 35 years Policy term: 20 years Annual premium: Rs 20,500

Let’s see what you get:
  • A tiny life cover of 10 times the annual premium. The ratio is 500 times in term life insurance policies.
  • From your first year premium about 10% the premium is deducted as charges and only the remaining portion, ie Rs 20500 is invested. Majority of what’s deducted goes to the agent’s pocket.
  • With every the total deduction as charges goes up and reaches close to 50% of the premiums in the last year! So by the end of the term very little of what you pay as premiums goes to the fund.
  • After all the deductions your net yield would be much lesser than the notional 10% or 6%.
This can be substantiated from illustration on LIC’s website at http://www.licindia.in/Flexi_Plus_Benefits_Illustration.htm

Instead if the premiums were invested in a mutual fund SIP all the returns the fund makes barring expense ratio (not exceeding 2.5%) would be yours. You can also get better insurance cover for your age and income through a term cover for a fraction of this premium. So you’d rather give this product a miss.

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