Good or bad? A Detailed ULIP Review

Reliance Nippon Life Prosperity Plus is a Unit-Linked, Non-Participating, Individual Life Insurance Plan.

Reliance Nippon Life Prosperity Plus Plan helps you save regularly providing you with the option of managing your savings or choosing from a variety of pre-designed investment strategies to suit your financial needs.

• Enjoy life insurance coverage throughout the Reliance Nippon Life Prosperity Plus Plan policy term.
• Select from various investment strategies tailored to your financial goals.
• Customize premium payments with options for a one-time payment or instalments over 5, 10, 15 years, or the entire policy term.
• Receive rewards for long-term investment through Loyalty and Maturity Additions.
• Access your funds flexibly with the Systematic Withdrawal Option.
• Build wealth with returns linked to market performance.

The Maturity Benefit shall be the aggregate of:

• Total Fund Value, which is the sum of the Base Fund Value and Top-up Fund Value, if any
• Maturity Additions
• Return of Policy Administration Charges at Maturity

You will have the option to receive the Maturity Benefit as a lump sum or as a structured payout using the Settlement Option.

In the unfortunate event of death of the Life Assured, the nominee shall receive the highest of:

• Base Sum Assured net of all ‘Deductible Partial Withdrawals/Deductible payments under Systematic Withdrawal Option’, if any from the Base Fund Value; and
• Base Fund Value; and
• 105% of the total premiums paid (excluding Top-up premiums) less ‘Deductible Partial Withdrawals/ Deductible payments under Systematic Withdrawal Option’ (if any) from the Base Fund Value

Loyalty Additions of 0.7% of the average daily Base Fund Value of the preceding 12 months are added at the end of every Policy year starting from the 6^th Policy year till the penultimate Policy year.

Maturity Additions of 1.4% of the average daily Base Fund Value of the preceding 12 months will be allocated at maturity as a Maturity Addition

Reliance Nippon Life Prosperity Plus offers you the following Investment Options to manage your funds. You may only opt for one Investment Option at any given point in time:

i.) Self-managed option

Under this investment option, you manage your investments by choosing amongst the eight investment funds in the proportions of your choice.

You have the option of switching amongst these funds and may choose premium redirection for your future premiums depending on your changing risk appetite and market conditions.

ii.) Systematic Transfer Plan (STP)

This option allows you to invest the premium or portion of Premium or Top-ups initially into Life Money Market Fund 1 and then systematically transfer (i.e. automatically switch) an amount every week into Life Equity Fund 3.

Under the Auto-Managed Option, you can choose between the Target Maturity Option and the Life Stage Option. You can opt in or out of these options at any time during the Reliance Nippon Life Prosperity Plus Plan Policy Term.

iv.) Target Maturity Option (Based on the outstanding term of the Policy)

Under this option, your investments will be allocated between Life Equity Fund 3 and Life Corporate Bond Fund 1.

During the first five Policy years, 100% of the allocation will be in Life Equity Fund 3.

From the sixth Policy year, any renewal premium or Top-up that you invest will be allocated between Life Equity Fund 3 and Life Corporate Bond Fund 1 based on the allocation schedule for that Reliance Nippon Life Prosperity Plus Plan Policy year.

Allocation in Life Equity Fund 3 = (Outstanding Policy Term – 1) / (Policy Term – 5)

v.) Life stage option

At the inception of your Reliance Nippon Life Prosperity Plus Plan Policy, your investments will be distributed between two funds, Life Equity Fund 3 and Life Corporate Bond Fund 1, based on attained age.

As you move from one age band to another, the renewal premiums and top-up premiums will be allocated based on the attained age.

vi.) Trigger Portfolio Option

The invested premium is allocated in a ratio of 3:1 across two funds, Life Equity Fund 3 and Life Corporate Bond Fund 1.

A trigger event is defined as at least a 10% upward movement in the unit price of Life Equity Fund 3, since the previous rebalancing or the inception of the Reliance Nippon Life Prosperity Plus Plan Policy, whichever is later.

On the occurrence of the trigger event, any value of units in Life Equity Fund 3 over 3 times the value of units in Life Corporate Bond Fund 1 is considered as gains and switched to Life Money Market Fund 1.

A. Premium Allocation Charges

There are no premium allocation charges for this product.

B. Policy Administration Charges

The Policy Administration Charges will be deducted by cancelling units proportionately from each segregated fund at the beginning of each month. The charges are subject to a maximum of ₹ 500 p.m. (₹ 6,000 p.a.)

C. Mortality charges

The Mortality Charges will be deducted from the Base Fund Value and the Top-up Fund Value, on a monthly basis at the beginning of each Reliance Nippon Life Prosperity Plus Plan Policy month using 1/12th of the mortality rates.

Sample Mortality Charge rate per 1000 Sum at Risk for AP greater than or equal to 1 lakh and less than 5 lakhs:

D. Fund Management Charges (FMC)

E. Partial Withdrawal Charges

Two Partial Withdrawals in a Policy year are free. And ₹ 100 will be deducted from the fund withdrawn on every extra Partial Withdrawal

F. Discontinuance Charges

The discontinuance charges depend on the year of discontinuance, premium amount, and premium paying term. There are no discontinuance charges from the 5^th policy year onwards.

G. Switching Charges

There are 52 free switches during any Reliance Nippon Life Prosperity Plus Plan Policy year and 4 free switches per year during the settlement period. Subsequent switches if any will have a fixed charge of ₹ 100 per switch.

Inference from the charges: These charges add to an investor’s overhead costs, as they are not applicable to other market-linked products. Over time, these substantial charges can significantly reduce your returns.

For Regular/Limited Pay Policy

Grace Period

There is a grace period of 30 days from the due date for payment of the premium. In the case of monthly frequency, the grace period is 15 days.

Discontinuance

Discontinuance of Policy during the first five Policy years i.e. during the Lock-in Period – If the due premium has not been paid within the grace period, the total fund value after deducting the applicable discontinuance charges, shall be credited to the Discontinued Policy Fund and the risk cover and rider benefits (if any) shall cease.

At the end of the fifth Policy year, the proceeds of the discontinuance fund shall be paid to the policyholder and the Reliance Nippon Life Prosperity Plus Plan Policy shall terminate

Discontinuance of Policy after the first five Policy years i.e. after the Lock-in Period: If due premium has not been paid within the grace period, the Policy shall be converted into a reduced paid-up Policy with the paid-up Sum Assured.

Revival

The policyholder may revive the Reliance Nippon Life Prosperity Plus Plan policy within the Revival Period of three consecutive complete years from the date of the first unpaid premium.

In the event you disagree with any of the policy terms or conditions, or otherwise and have not made any claim, you shall have the option to return the policy within 30 days beginning from the date of receipt of the policy document, whether received electronically or otherwise.

For Regular/Limited Pay Policy

During Lock-in Period: You have the option to surrender the Policy anytime and you will be entitled to the Discontinued Policy Fund Value at the end of the fifth Policy year or the date of surrender whichever is later, and the Policy will be terminated

After Lock-in Period: The Reliance Nippon Life Prosperity Plus Plan policyholder has the option to surrender the Policy anytime during the revival period and the fund value shall be payable and the Policy will terminate.

For Single Pay Policy

On surrender of the Policy during the first five Policy years, the Total Fund Value (i.e. Base Fund Value plus Top-up Fund Value), if any, after deduction of applicable Discontinuance Charge, shall be transferred to the Discontinued Policy Fund and risk cover and rider cover, if any, shall cease.

The proceeds from the Discontinued Policy Fund will be payable to you at the end of the fifth Policy year or on the date of surrender whichever is later.

On surrender after completion of the fifth Policy year, you will be entitled to the Fund Value including Top-up Fund Value, if any.

• Top-up premiums are permitted.
• Partial withdrawals from the base fund value are allowed after five policy years or when the life assured turns 18, whichever is later.
• The Systematic Withdrawal Option enables automated withdrawals of a specified percentage or amount from your fund.
• With the Self-Managed option, you can switch between eight available funds and redirect your premiums.
• Maturity benefits can be received as a lump sum or through structured payouts using the Settlement Option.
• Riders can be added to enhance the base policy.

• This plan does not offer a loan facility.
• Liquidity is restricted during the first five policy years.
• The net premium is invested only after deducting applicable charges.
• While the plan reimburses the policy administration charge, it does not account for the time value of money.

Estimating potential returns (Internal Rate of Return) is crucial when assessing a market-linked product, as it enables comparison with other investment options and aids in making informed decisions.

Let’s analyse the Reliance Nippon Life Prosperity Plus Plan using a sample quote from the official portal.

Consider a 35-year-old male opting for the plan with a sum assured of ₹15 lakhs. The policy term and premium payment term are set at 15 years, with an annual premium of ₹1,50,000. At the end of the term, the accumulated fund value will be paid out.

The projections are based on assumed investment returns of 4% and 8%, which are neither guaranteed nor indicative of the maximum or minimum returns possible under this policy.

At a 4% return rate, the estimated fund value is ₹28.32 lakhs, translating to an Internal Rate of Return (IRR) of 2.82% as per the Reliance Nippon Life Prosperity Plus Plan maturity calculator.

At an 8% return rate, the estimated fund value is ₹39.21 lakhs, with an IRR of 6.67% as per the Reliance Nippon Life Prosperity Plus Plan maturity calculator.

Despite a 15-year policy term, the returns may not be suitable for a long-term investment strategy. With inflation likely to increase the cost of financial goals, the returns from the Reliance Nippon Life Prosperity Plus Plan may fall short of keeping pace.

This indicates a potential gap in achieving the desired corpus if this ULIP is chosen.

Considering the disproportionate risk and return in the previous case, let’s explore alternative investment strategies that offer better risk-adjusted returns.

While ULIPs combine insurance and investment, separating these components is often a more efficient approach. Using the same parameters as before, let’s analyse two scenarios.

For life coverage, a pure-term insurance policy with a sum assured of ₹15 lakhs costs ₹7,100 annually for a 15-year term.

In the previous example, the total premium was ₹1,50,000. Opting for a pure-term policy leaves ₹1,42,900 available for investment.

Investment choices can vary based on risk appetite. Risk-averse investors may consider debt options like PPF. Risk-tolerant investors can explore equity investments like ELSS funds.

PPF Investment: The estimated maturity value is ₹38.75 lakhs, with an IRR of 6.54%. This return closely matches the 8% scenario of the Reliance Nippon Life Prosperity Plus Plan.

Despite being a debt instrument, PPF provides better returns than the ULIP at the same assumed rate.

ELSS Investment: The estimated pre-tax maturity value is ₹59.66 lakhs. After accounting for capital gains tax, the net maturity value is approximately ₹55.04 lakhs, with a post-tax IRR of 10.55%.

This analysis highlights that separating insurance and investment can deliver significantly higher returns, facilitating greater wealth accumulation and faster financial growth compared to the Reliance Nippon Life Prosperity Plus Plan.

The Reliance Nippon Life Prosperity Plus Plan combines life insurance coverage with market-linked investments. However, various charges significantly reduce the investable amount, impacting overall returns.

Our analysis reveals that the plan’s long-term returns are relatively low and do not justify the associated risks of a market-linked product.

Moreover, the sum assured under this plan may fall short of adequately meeting a family’s basic needs, potentially disrupting your long-term financial plan.

As a result, the Reliance Nippon Life Prosperity Plus Plan is not an ideal option for either life insurance coverage or wealth accumulation and it also has a high agent commission.

For life insurance, a pure-term policy is a more effective solution, providing essential financial protection for your family.

To achieve your financial goals, it is essential to build a diversified investment portfolio across asset classes, which can help you navigate complex financial conditions and grow your wealth.

Choosing the right insurance and investment products requires thorough evaluation.

When it comes to financial advice, are Quora, Facebook, and Twitter the final word?

If needed, consult a Certified Financial Planner for professional guidance. Their expertise can help you select products that align with your financial goals and needs effectively.