Good or Bad? An Insightful ULIP Review

Aviva Signature Investment Plan is a Unit Linked Non-Participating Individual Life Insurance Plan. It helps you save in a systematic manner for your future but also ensures that your loved ones are taken care of in case of an unfortunate incident.

• Offers two plan variants: Signature GenX and Signature Millennial.
• Provides a refund of up to 100% of mortality and policy administration charges at maturity, based on the premium size.
• Features zero allocation charges, maximizing the investment value.
• Includes two savings strategies to align your funds with your preferred equity-debt allocation or life stage.
• Provides a selection of eight fund options to suit varying risk profiles.
• Under the Signature Millennial option, all future premiums are waived in case of the policyholder’s unfortunate death during the Aviva Signature Investment Plan policy term.
• Ensures easy liquidity with options for partial withdrawals and systematic partial withdrawals to meet unexpected financial needs.

Signature GenX Option:

The death benefit payable shall be the highest of:

• Sum assured or
• Fund value pertaining to Regular/Single Premium or
• 105% of the total premiums received up to the date of death,

PLUS

The Highest of:

• Top–up sum assured or
• Fund value pertaining to top-up premiums or
• 105% of top-up premiums received up to the date of death, if any

Signature Millennial Option:

In case of death of the Policyholder (Life insured), the Sum Assured or 105% of the total premiums received up to date of death whichever is higher (and Top-Up Sum Assured or 105% of top-up premiums received up to date of death whichever is higher, if any) shall be payable and the policy continues for the benefit of the Nominee (Beneficiary) till maturity date.

All future regular premiums will be paid by the insurer and the Fund Value shall be paid to the Nominee (Beneficiary) on the maturity date.

In the case of Signature GenX Option, in case life insured survives till maturity date, or

In the case of the Signature Millennial Option either the life insured survives till the maturity date, or the life insured has died before the maturity date and premiums were paid by the insurer, the following amounts shall be payable as maturity benefit:

• Fund Value of units pertaining to regular/single premium and
• Fund Value pertaining to Top-up premiums, if any,
• X% of the mortality charges and policy administration charges deducted during the Aviva Signature Investment Plan policy term pertaining to regular /single premium (excluding top-up premiums, if any), where X varies as per policy term

You can invest 100% of your premiums in any of the funds or choose a combination of funds as per your desire. You can select from 8 funds tailored to different risk profiles, determined by their asset allocation. Ensure the fund you choose aligns with your personal risk tolerance.

Systematic Transfer Plan (STP):

This facility is available if at least 10% of premiums are allocated to Protector Fund-II.

This feature will enable automatic switching from Protector Fund-II to Enhancer Fund-II on a weekly or monthly basis, as chosen, during the Aviva Signature Investment Plan policy term, except in the last 2 years.

During the last 2 years (i.e., the last 24 months before maturity), the funds will be switched from the Enhancer Fund-II to the Protector Fund-II.

All switches under STP will be free of cost and do not carry any restriction on the minimum switch amount and minimum balance after the switch.

Retire Safe:

Under the Retire Safe strategy, the units in all the funds shall be systematically transferred to the BOND-II Fund from all other existing funds, if any.

The transfer of the units shall be done in 12 quarterly tranches during the last 12 quarters before the maturity date. No switching shall be allowed from the BOND-II fund to any other fund in the last 12 quarters of the Policy Tenure

i.) Premium Allocation Charge

NIL

ii.) Policy Administration Charge

Policy Administration Charge (PAC) will be made by monthly redemption of Units from the policy unit account and is applicable throughout the Aviva Signature Investment Plan policy term.

FMC for all Funds other than the Discontinued Policy Fund would be 1.35% per annum. FMC for Discontinued Policy Fund would be 0.50% per annum

iv.) Mortality Charge

It will be applied on the Sum at risk, which is the difference between the amount of death Benefit Payable minus the Fund Value as on deduction of this charge.

v.) Surrender/Discontinuance charge

This charge will be deducted from the policy unit account in case the policy is discontinued within the first 5 years. It is based on the annualised premium, fund value and the year of discontinuance.

vi.) Switching/Partial Withdrawal/Miscellaneous Charge

NIL

For other than single premium policies

Grace period

The grace period for payment of the premium shall be 15 days where the policy holder pays the premium monthly and 30 days in all other cases

Discontinuance

Lock-in-period means the period of five consecutive completed years from the date of commencement of the policy.

Policy Discontinuance within the Lock-in-period: the Fund Value will be credited to the Discontinued Policy fund after deducting the applicable discontinuance charges and the risk cover and rider cover, if any, shall cease.

The proceeds of the Discontinued Policy Fund shall be paid to you and the policy shall terminate at the end of the Lock-in-period.

Policy Discontinuance after the Lock-in-period: Your policy shall be converted into a reduced Paid-up Policy with the Paid-Up Sum Assured.

Paid-Up Sum Assured = Sum Assured x (Number of Limited or Regular Premiums Received / Total Number of Limited or Regular Premiums Payable under the Policy)

Revival

You have the option to revive the Aviva Signature Investment Plan policy within the Revival Period of three years.

If the policyholder disagrees with any of the terms or conditions, he/she has the option to return the policy within 15 days (30 days if the policy is solicited through distance marketing) from the date of receipt of the policy document.

Lock-in-period means the period of five consecutive completed years from the date of commencement of the policy.

For Single Premium Policies

Within the lock-in period: the Fund Value after deducting the applicable discontinuance charges shall be credited to the Discontinued Policy fund. The proceeds of the Discontinued Policy Fund shall be paid to you and the policy shall terminate at the end of the Lock-in-period.

After the lock-in period: Upon receipt of the request for surrender, the fund value as on the date of surrender shall be payable.

For other than single premium policies

Within the lock-in period: the Funds shall remain invested in the Discontinued Policy Fund. The proceeds of the Discontinued Policy Fund shall be paid to you at the end of the Revival Period or Lock-in-period, whichever is later.

After the lock-in period: If You surrender the Aviva Signature Investment Plan policy, Fund Value will be paid to you.

• Premium redirection allows you to reallocate future premiums across funds without any additional cost.
• Enjoy unlimited free fund switches to adapt your investments as needed.
• Top-up premiums can be added at any point during the Aviva Signature Investment Plan policy term.
• Partial withdrawals are available after completing five policy years or when the life insured turns 18, whichever comes later.
• Systematic withdrawals offer structured, regular payouts tailored to your financial needs.
• The waiver of premium is an in-built benefit under the Signature Millennial option.

• Policy loans are not permitted under this plan.
• No liquidity is provided during the early years of the policy.
• The sum assured might be inadequate to meet significant financial needs.
• Investments are based on the net premium, calculated after deducting applicable charges.
• The return of charges is less appealing, as it does not account for the time value of money.

The primary goal of investing in a market-linked product is to accelerate wealth accumulation.

To assess whether the Aviva Signature Investment Plan achieves this objective, we calculate the returns using the Internal Rate of Return (IRR) for a case study based on figures from the Aviva portal.

A 35-year-old male opts for the Aviva Signature Investment Plan with a sum assured of ₹12 Lakhs. The policy term and premium payment term are both 20 years, with an annual premium of ₹1.2 Lakhs.

The illustrative returns are based on assumed rates of 4% p.a. and 8% p.a. These rates are purely hypothetical and neither guaranteed nor indicative of actual performance, as the fund value depends on factors like future investment performance.

At an assumed return of 4% p.a., the fund value at maturity is projected to be ₹30 Lakhs, with an IRR of 2.08% as per the Aviva Signature Investment Plan maturity calculator.

At an assumed return of 8% p.a., the fund value at maturity is projected to be ₹46.83 Lakhs, with an IRR of 6.01% as per the Aviva Signature Investment Plan maturity calculator.

The potential returns from the Aviva Signature Investment Plan are lower than those offered by traditional debt instruments, which contradicts the purpose of investing in a market-linked product.

This may hinder wealth accumulation or lead to a shortfall in achieving financial goals. Additionally, the sum assured of ₹12 Lakhs may not be adequate to cover the family’s essential needs, further limiting its utility.

Long-term investments must outpace inflation to preserve and grow wealth. Unfortunately, the Aviva Signature Investment Plan, with its 20-year policy term, fails to deliver inflation-beating returns.

Let us explore superior alternatives that could generate higher returns using the same premium amount as in the earlier example.

Opting for a pure-term insurance policy and investing the remaining premium can lead to better returns (alpha generation). Here is an illustrative scenario:

A pure-term insurance policy with a ₹20 Lakh sum assured costs approximately ₹6,600 per year for a 20-year term. This leaves ₹1,13,400 annually from the original premium, which can be invested to generate higher returns.

Selecting the right investment depends on your risk tolerance:

Low-risk option: Investing in a PPF (Public Provident Fund), a debt instrument, yields a maturity value of ₹50.33 Lakhs at an IRR of 6.62%.

High-risk option: Investing in an ELSS (Equity Linked Savings Scheme), an equity instrument, generates a pre-tax maturity value of ₹91.51 Lakhs and a post-tax value of ₹83.06 Lakhs. The combined IRR for this strategy (pure-term insurance + ELSS) is 10.76% (post-tax).

PPF vs. Aviva: The PPF’s debt returns outperform Aviva’s market-linked product, even at its higher assumed rate of 8%.

ELSS Advantage: Equity investments through ELSS deliver significantly higher returns, offering better wealth accumulation over time.

This analysis underscores that separating insurance and investment is a smarter financial strategy, ensuring superior returns and enhanced financial flexibility. This strategy provides greater flexibility, addressing a key limitation of the Aviva Signature Investment Plan.

The Aviva Signature Investment Plan is a typical ULIP available in the market. While it highlights the benefit of returning charges, it falls short of delivering inflation-beating returns due to its high charges, which significantly impact overall performance.

The plan’s risk-return profile is not well-aligned for effective wealth accumulation, and its low sum assured may be inadequate to support a family in case of unforeseen events and it also has a high agent commission.

To start your investment journey on the right foot, opt for a standalone pure-term life insurance policy for affordable and sufficient life coverage.

Use the surplus premium to invest wisely based on your life goals, risk tolerance, and time horizon. Building a diversified and well-structured investment portfolio is key to achieving long-term financial success.

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