LIC Flexi Plus Review

by Manshu on January 9, 2013

in Insurance

LIC Flexi Plus is a new ULIP launched by LIC this year, and this product gives you life cover and invests a part of your money in either a debt or mixed fund. The life cover is ten times your annual premium.

It used to be that ULIPs were ridiculously expensive but with changes in the last couple of years, their costs have come down and you can’t outright dismiss them these days.

However, they still have costs at multiple levels, and because this relatively low cost regime has not been in existence for very long, it is not possible to see how ULIP funds have really performed compared to equity or debt mutual funds after these changes. We will look at the costs later on in this post, but first let’s take a look at the key features of LIC Flexi Plus.

Insurance

The life insurance cover is ten times your annual premium, and they deduct mortality charges for that from your premium in order to account for the life cover expense.

Investment

You can choose to invest  your money in either a debt fund or a mixed fund. Here is some quick information about them from the LIC Flexi Plus page.

 

Fund Type Investment in Government / Government Guaranteed Securities / Corporate Debt Short-term investments such as money market instruments Investment in Listed Equity Shares Details and objective of the fund for risk /return SFIN No.

Debt Fund

 

Mixed Fund

Not less than 60%

Not less than 45%

Not more than 40%

Not more than 40%

Nil

Not less than 15% &
Not more than 25%

Low risk

Steady Income –Lower to Medium risk

ULIF00118 0912LICFLX+DBT512

ULIF00218 0912LICFLX+MIX512

Plan Payment Term

This is quite an important thing to look at in my opinion as the term is either 10 years or 20 years, and you are locked in to the ULIP for these many years. You can of course discontinue the fund but there is penalty in doing that, and you don’t want to invest here if you can’t pay the premium for the entire term.

The flip-side of this is you can’t exit out of it if the underlying funds don’t perform well.

LIC Flexi Plus Costs

The costs associated with LIC Flex Plus are as follows.

Premium Allocation Charge

These are charges that get deducted from your premium before the money is used for anything else. In the case of Flexi Plus, the premium allocation charges are as follows:

Premium

Allocation Charge

1st  Year

7.50%

2nd  to 5th  Year

5.00%

Thereafter

3.00%

Mortality Charge

The second charge is the mortality charge which is the insurance cost of the ULIP. The mortality charges are dependent on age, and the table below gives a snapshot of how these are charged.

Age

25

35

45

50

Rs.

1.36

1.66

3.73

6.29

 

Policy Administration Charges

The next cost related to this is policy administration charges, and they are charged per month as follows:

 

Policy Year

Policy Admin Charge

1

 Rs. 50

2

 Rs. 41.20

3

Rs. 42.44

4

 Rs. 43.71

5

 Rs. 45.02

6 and over

Rs. 34.78 and increasing by 3% every year after that

 Fund Management Charges

Since there are funds that will manage your money, this ULIP has to bear fund management charges as well, and those are as follows.

  • 0.50% p.a. of unit fund for Debt Fund
  • 0.60% p.a. of unit fund for Mixed Fund

The above were all the charges that I could find related to this fund, and while they are not as crazy as they used to be – it’s not very cheap either.

Conclusion

As you can see the LIC Flexi Plus is not exactly cheap, and in a way comes with a long lock in period which you can break after 5 years without a penalty, but before that you will have to pay a penalty called the discontinuation charge which is charged as follows:

Where the policy is discontinued during the policy year Discontinuance charges for the policies having annualized premium up to Rs. 25,000/- Discontinuance charges for the policies having annualized premium above Rs. 25,000/-

1

Lower of 15% * (AP or FV) subject to a maximum of Rs. 2500/-

Lower of 6% * (AP or FV) subject to maximum of Rs. 6000/-

2

Lower of 7.5% * (AP or FV) subject to a maximum of Rs. 1750/-

Lower of 4% * (AP or FV) subject to maximum of Rs. 4000/-

3

Lower of 5% * (AP or FV) subject to a maximum of Rs. 1250/-

Lower of 3% * (AP or FV) subject to maximum of Rs. 3000/-

4

Lower of 3% * (AP or FV) subject to a maximum of Rs. 750/-

Lower of 2% * (AP or FV) subject to maximum of Rs. 2000/-

5 and onwards

NIL

NIL

 

Given the role LIC has played in some of the PSU IPOs in the past, and all these other concerns about the product, I can’t find a good reason to invest in this. I would much rather invest in a balanced fund (Read: Best Balanced Funds in India) or simply a debt fund instead of this and buy insurance separately.

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