Good or Bad? A Detailed ULIP Review

AVIVA Signature Investment Plan-Limited Pay is a Unit-linked Individual Insurance Plan. The plan will help you to care for your family, stay committed to your savings goals, and face the future with confidence.

• Flexible Payment Options: Limited premium payment term for added convenience.
• Zero Allocation Charges: Enjoy full allocation of your premiums to investments.
• Diverse Fund Choices: Select from 8 fund options tailored to your risk appetite.
• Customizable Investment Strategies: Two saving strategies to adjust your portfolio between equity and debt based on your preferences and life stage.
• Refund of charges at Maturity: Get up to 100% of mortality and policy administration charges refunded, depending on your premium size.
• Liquidity for Emergencies: Access funds easily through partial withdrawals and systematic partial withdrawals during unforeseen circumstances.

The death benefit payable shall be the Highest of:

• Sum Assured or
• Fund value pertaining to Limited Premium or
• 105% of the total premiums received up to the date of death,

AND

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

In case the life insured survives till the maturity date, the following amounts shall be payable as maturity benefit:

• Fund Value of units pertaining to Limited 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-Limited Pay policy term pertaining to Limited premium (excluding top-ups premiums, if any), where X varies as per premium amount

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 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-Limited Pay policy term.

iii.) 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

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

These recurring expenses increase the overall cost for the investor and can significantly reduce the potential returns over time.

Grace Period, Discontinuance and Revival of Aviva Signature Investment Plan – Limited Pay

Grace period

The grace period for payment of the premium shall be 15 days when the AVIVA Signature Investment Plan-Limited Pay policyholder 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 AVIVA Signature Investment Plan-Limited Pay 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-Limited Pay 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 Signature Investment Plan-Limited Pay 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 Signature Investment Plan-Limited Pay policy, Fund Value will be paid to you.

• No Policy Loan Facility: Loans cannot be availed under this plan.
• Limited Early Liquidity: The plan does not offer liquidity during its initial years.
• Inadequate Coverage: The sum assured may fall short of meeting substantial financial goals.
• Net Premium Investment: Investments are made after deducting applicable charges from the premium.
• Refunds Without Time Value Adjustment: While mortality and policy administration charges are refunded at maturity, the impact of the time value of money is not accounted for.

Estimating potential returns, particularly the Internal Rate of Return (IRR), is essential when evaluating a market-linked product. It facilitates comparison with other investment options and supports informed decision-making.

Let us analyse the Aviva Signature Investment Plan – Limited Pay using a sample quote from the official portal.

Consider a 35-year-old male opting for this plan with a sum assured of ₹12 lakhs. The policy term and premium payment term are both set at 20 years, with an annual premium of ₹1,20,000. At the end of the term, the accumulated fund value is paid out.

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 the policy.

At a 4% return: The estimated fund value is ₹30 lakhs, resulting in an IRR of 2.08% as per the AVIVA Signature Investment Plan-Limited Pay maturity calculator.

At an 8% return: The estimated fund value is ₹46.83 lakhs, yielding an IRR of 6.01% as per the AVIVA Signature Investment Plan-Limited Pay maturity calculator.

Despite the 20-year policy term, the returns may not align with the requirements of a long-term investment strategy.

Given the impact of inflation on financial goals, the returns from the Aviva Signature Investment Plan – Limited Pay may not keep pace, potentially leaving a shortfall in achieving the desired corpus. This highlights the limitation of relying solely on this ULIP for long-term financial planning.

Given the disproportionate risk and return in the earlier scenario, exploring alternative investment strategies can yield better risk-adjusted returns.

While ULIPs combine insurance and investment, separating these components often proves more effective. Let us analyse two alternative approaches using the same parameters.

For life coverage, a pure-term insurance policy with a sum assured of ₹12 lakhs costs ₹6,600 annually for a 20-year term. Compared to the total premium of ₹1,20,000 in the previous example, this leaves ₹1,13,400 available for investment.

Investment options can vary depending on risk appetite. For Risk-Averse Investors: Debt instruments like PPF (Public Provident Fund) and For Risk-Tolerant Investors: Equity-based investments like ELSS (Equity-Linked Savings Scheme) funds.

PPF Investment:

Estimated maturity value: ₹50.33 lakhs.

IRR: 6.62%.

This return is comparable to the 8% scenario of the Aviva Signature Investment Plan – Limited Pay. Despite being a debt option, PPF offers superior returns relative to the ULIP.

ELSS Investment:

Estimated pre-tax maturity value: ₹91.51 lakhs.

Net maturity value (after capital gains tax): ₹83.06 lakhs.

Post-tax IRR: 10.76%.

ELSS demonstrates significantly higher returns, even after accounting for taxes.

This analysis underscores the advantages of separating insurance and investment. By doing so, investors can achieve higher returns, enabling greater wealth accumulation and faster financial growth compared to the Aviva Signature Investment Plan – Limited Pay.

The Aviva Signature Investment Plan – Limited Pay combines life insurance with market-linked investments but falls short on multiple fronts.

High charges significantly reduce the investable amount, impacting overall returns. Our analysis indicates that the plan’s long-term returns are relatively low and fail to justify the risks associated with a market-linked product.

Additionally, the sum assured under this plan may not sufficiently cover a family’s basic financial needs, potentially jeopardizing long-term financial security and it also has a high agent commission.

Consequently, the Aviva Signature Investment Plan – Limited Pay is suboptimal for both life insurance coverage and wealth accumulation.

For life insurance, a pure-term policy is a more efficient choice, offering robust financial protection for your family at a lower cost.

To achieve financial goals, it is crucial to build a diversified investment portfolio spanning various asset classes. This approach helps mitigate risks, adapt to market conditions, and grow your wealth effectively.

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Selecting the right insurance and investment products requires careful evaluation. Consider seeking advice from a Certified Financial Planner for personalized guidance. Their expertise can ensure your financial strategy aligns with your goals and secures your future effectively.