Good or bad? A Detailed ULIP Review

Aviva Affluence is an individual unit-linked non-participating life insurance plan. It allows you to pay for a limited payment term and stay protected and invested to meet long-term milestones.

You can optimize the returns by choosing from 8 fund options and changing the pattern with varying risk appetite.

• Align your policy term with your long-term financial goals.
• Flexibly pay premiums for 7, 10, 15 years, or throughout the policy duration.
• Enjoy periodic rewards like Milestone Boosters and Maturity Boosters for staying invested.
• Ensure a minimum payout with the Secure Sum Assured in case of the policyholder’s untimely demise.
• Choose from 8 funds or combine them to match your risk tolerance and investment preferences.
• Access your funds easily during emergencies with partial withdrawal options.
• Reinforce your future savings by adding windfall gains through Top-ups in the same plan.
• Receive an additional assured amount in case of accidental death.

In case of the unfortunate death of the life insured, the nominee will receive the highest of the following:

• Sum Assured or
• The fund value pertaining to regular/limited premiums or
• 105% of regular premiums paid

In case top-up premiums were paid in the Aviva Affluence Plan policy, there would be an additional payout. The highest of,

• Top Up Sum Assured or
• Fund Value pertaining to Top Up premiums or
• 105% of Top-Up premiums paid

Get the Fund Value pertaining to regular premiums, Top-Up premiums, if any, and the Maturity Booster Additions on survival till maturity.

Maturity Booster Addition is calculated as a percentage of fund value pertaining to regular premiums on maturity.

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 policy term, except in the last 2 years.

During the last 2 years (i.e. 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.

i.) Premium Allocation Charge

This charge is deducted from the premium paid and the balance amount after deducting this charge is invested.

ii.) Fund Management charge

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

iii.) Policy Administration Charge

This charge will be made by monthly redemption of units from the policy unit account. Policy Administration Charge is applicable throughout the policy term.

Policy Administration Charge of 0.20% of Annual Premium per month shall be increased by 2.50% per annum on each policy anniversary from the 7th Policy Year onwards. This charge cannot exceed Rs.500 per month.

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.) 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 charge

There are no charges on the first 12 switches in a policy year; subsequent switches are charged at 0.50% of the amount switched, subject to a minimum of Rs.25 and a maximum of Rs.500 per switch.

Inference from the charges: Certain charges are applied throughout the policy term, unlike other market-linked instruments. These additional costs act as overheads for investors, potentially reducing returns over time.

Grace period

The grace period for payment of the premium is 30 days. During this time the Aviva Affluence Plan policy is considered to be in-force with the risk cover without any interruption.

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 Aviva Affluence Plan 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 Affluence 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 Aviva Affluence Plan policy.

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 Affluence Plan policy, Fund Value will be paid to you.

• The in-built Accidental Death Sum Assured matches the Base Sum Assured.
• Enjoy up to 12 free unit switches per policy year.
• Premium redirection lets you adjust the allocation of future premiums across funds at no extra cost.
• Partial withdrawals are permitted after completing 5 policy years or once the life insured turns 18, whichever is later.
• Systematic withdrawals enable structured, regular withdrawals to suit your needs.
• Increasing Milestone Boosters (IMB), calculated as a percentage of the fund value, are added upon reaching specified policy milestones.

• Policy loans are not allowed under this plan.
• No liquidity is available during the initial policy years.
• The sum assured may be insufficient.
• Investments are made using the net premium after deducting applicable charges.

The primary goal of market investments is to achieve higher long-term yields, with risk-taking investors expecting alpha generation.

To evaluate the Aviva Affluence Plan’s potential returns, we analyse a case study based on portal-provided figures, including Internal Rate of Return (IRR) calculations, to determine the plan’s effectiveness and compare it to alternative investments.

A 35-year-old male purchases the Aviva Affluence Plan with a sum assured of ₹20 Lakhs. The policy term and premium payment term are both 20 years, with an annual premium of ₹1 Lakh.

If premiums are consistently paid, the maturity benefit will include the fund value and maturity booster additions. The following figures are based on the assumed future investment returns of 4% and 8%. They are not guaranteed returns.

At 4% p.a. return: Fund value = ₹23.29 Lakhs; IRR = 1.43% as per the Aviva Affluence Plan maturity calculator.

At 8% p.a. return: Fund value = ₹36.55 Lakhs; IRR = 5.45% as per the Aviva Affluence Plan maturity calculator.

Despite being a market-linked product, the plan fails to deliver returns comparable to even debt instruments, missing the alpha generation investors expect.

The maturity proceeds are insufficient to meet the inflated costs of future financial goals, making the plan unsuitable for long-term wealth creation.

The extended policy term demands a larger corpus, adding to the plan’s inefficiency. The sum assured is inadequate to provide comprehensive family protection, making it an unsuitable insurance option.

The IRR Analysis implies that the Aviva Affluence Plan undermines financial planning due to its low returns and insufficient coverage, making it a less-than-ideal choice for achieving investment and insurance goals.

The Aviva Affluence Plan is a market-linked product, yet its returns are lower than those of debt instruments, making it an unappealing choice for investors.

To better understand this, let’s compare the plan with an alternative strategy that separates insurance and investment, using the same metrics as in the earlier illustration.

A pure-term life insurance policy with a sum assured of ₹20 Lakhs requires an annual premium of ₹10,600 for a 20-year term.

This leaves ₹89,400 from the ₹1 Lakh annual premium for wealth accumulation. Depending on risk tolerance, investors can allocate this amount to either debt or equity instruments.

Investment in a PPF account which is a debt instrument results in a final maturity value of ₹39.68 Lakhs with an IRR of 6.15%.

Or else consider investing in an ELSS fund which is an equity instrument that generates a pre-tax maturity value of ₹72.14 Lakhs and a post-tax value of ₹65.51 Lakhs. The IRR for the combined strategy (pure-term insurance + ELSS) is 10.32% (post-tax).

Both scenarios yield a higher corpus than the Aviva Affluence Plan. The IRRs in these alternatives surpass inflation, making them more effective for wealth creation.

This analysis demonstrates that separating insurance and investment leads to better results, as opposed to combining them in a single product.

The Aviva Affluence Plan falls short of delivering competitive returns, and its bundled structure limits flexibility and efficiency.

Opting for a pure-term life insurance policy and investing separately in market instruments offers a superior approach to achieving both financial protection and wealth growth.

The Aviva Affluence Plan is a standard ULIP offering equity exposure in your investment portfolio. While it may appeal to investors seeking long-term equity-based growth, a closer examination of its returns reveals significant shortcomings.

The plan delivers sub-par returns for long-term investments, with a disproportionate risk-to-return ratio.

High charges erode returns over time, and the sum assured falls short of adequately protecting your family’s future needs. These factors make the Aviva Affluence Plan an unsuitable choice for equity allocation.

For equity investments to justify their associated risks, returns must significantly outpace inflation and it also has a high agent commission.

To achieve better risk-adjusted returns, it is more effective to invest in other market-linked instruments instead of ULIPs.

For life insurance, pure-term policies are the ideal option, offering high coverage at affordable premiums.

Do Quora, Facebook, and Twitter have the final say when it comes to financial advice?

To build a well-rounded financial plan, consider consulting a professional financial planner.

They can help design an investment portfolio tailored to your risk tolerance, life goals, and time horizon, ensuring your financial strategy aligns with your unique requirements.