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Reader Comment: Is Bajaj Alliance Shield Plus worth it? [NO]

A comment from Raju on my ULIP post:

I am [an] NRI.I invested 5 lacs in Bajaj Alliance shield plus plan.Which requires only one payment. And insurance is 1.1 times rather than five times of investment. I have been told that expenses are minimal.

I am a retire. I do not need insurance.Is it a good investment.Also I have been advised that it is tax free for NRI, if money came from NRE account.Is it true? Because most policy requires three payments and not one. Also most company requires you to buy life insurance policy for five times the value of your investment.

Please advise.I am still within two week look over period.

Dear Mr. Raju,

Do not buy this ULIP. If you have bought it, RETURN IT IMMEDIATELY.

Note that I don’t know much else about you, so don’t consider this financial advice. A doctor may not prescribe a medicine for you without knowing your complete condition, but if you ask him whether you should eat cyanide, the answer, regardless of your condition, will be NO. Ulips are financial cyanide for you. Just don’t do it.

First, you don’t need insurance.So the insurance part is useless for you.

Second, As investments, ULIPs are crap. In comparison with the other options you have, such as mutual funds, it is much much worse. Why?

Let’s look at the Shield Plus plan: It’s a 10 year single premium plan with 1.1x to 5x the premium as sum assured (no use to you, so you’ll take 1.1x). They offer one sub-plan as a guaranteed 70% flat return over 10 years, or market linked funds with equity or debt exposure.

  • The 70% guaranteed return is utterly ridiculous. (When they say 170% of unit price, that is what they mean. Another case of mis-selling using twisted language) If you get just 6% post-tax return on your money, that itself will give you 80.61%, or 10% MORE than their “guarantee”.
  • Apart from Fund management fees of 1.35%, you will pay a policy admin charge of 2% in the first five years and 1% after that.
  • You’re luckily not charged premium allocation charges (since the premium is 5 lakhs), but had the amount been less than 2.5 lakhs, that will hit you too.
  • Surrender charges of 6% in the fourth year, and 3% in the fifth (you can’t surrender earlier than that).

This is OBSCENE, for charges. Consider the charges for 10 years, and assume a growth of 8% for your five lakh premium, and ignoring the dysfunctional insurance:

With the Birla Shield Plus plan you make 7.88 lakhs. With a mutual fund charging 2.5% annually (the maximum chargeable, the real values are usually lesser) you make 8.38 lakhs. You are losing 10% of your money, or Rs. 50,000, to invest in this plan.

Lastly, consider the fact that you’re about to retire and might need the money anytime, for an emergency or otherwise. In the ULIP, you can’t exit before three years, and in the fourth and fifth year you have a huge penalty. Mutual funds have minimal exit loads, in comparison. And worse, if the ULIP performs badly, you have no option but to stay with it – in a mutual fund, you have the option of exiting.

I am not a tax lawyer, but it seems that you get 80C tax benefits only for 20% of the sum assured. (see this DNA article) The Tax Free for NRI business sounds like plain lying to me; there is no such thing as far as I know.

I wouldn’t even say mutual funds are the right thing for you – I don’t know if you’re looking at steady income, capital appreciation, capital security or bits of each. But I would recommend taking a hard look at all the choices; government bonds or state loans, term bank fixed deposits, debt or equity mutual funds or corporate bonds/debentures. ULIPs are just not worth it for you.