HDFC Life encouraged with the response on its Online Term Plan Click2Protect has recently launched its online ULIP called Click2Invest. This is the first ULIP offered online exclusively after the IRDA new Regulations in 2010.
Click2Invest – Salient Features:
- HDFC Life Click2Invest can be bought only online
- As no insurance advisors are involved in the sale of this ULIP – the costs are kept low
- There are no Policy Allocation Charges or Policy Administration Charges in the policy
- There is Fund Management Charges of 1.35% and Mortality Charges depending on your age
- You can pay the premium Monthly or Annually
- Some plans may not give Tax Benefit (For getting tax benefit the Life Insurance offered should be 10 times the annual premium paid. Click to read details)
- There are 8 investment options to choose from – Equity dominant, Balanced and Debt dominant
There are 8 options to choose from.
Whats good about HDFC click2invest?
1. The expense in the plan is low
There are no policy allocation charges or Policy Administration charges, which reduce the initial corpus to be invested in most other ULIPs. This in turn impacts the returns.
There are only two charges – Fund Management Charge of 1.35% and Mortality Charges depending on your age.
If you check the illustration below, you would find the net return is 6.55% on the gross return of 8%. This means only 1.45% is the net expense in the plan. Almost all (except Quantum Tax Saving Fund) Tax Saving equity mutual funds (ELSS) have expense ratio in excess of 1.5%, which means the HDFC ULIP is cheaper than most ELSS Funds.
2. Life Insurance
As this is ULIP, it also carries death benefit which maximum of
- Sum assured (10/7 times the annual premium or 1.25 times in case of single premium)
- Fund value or
- 105% of the premiums paid
So the nominee is assured of at least the sum assured part as soon as you enroll in the policy.
3. Tax Free Returns
The sum received on maturity, surrender or maturity is tax free (Single Premium and People with more than 55 Years of age paying annual premium payment would not get tax benefit)
4. Free Switches
The ULIP allows 4 free switches between funds in a year. You can use this to shift your investment between debt and equity fund as per your asset allocation plan. You can also book profits from time to time by transferring money from equity to debt fund.
Also as the policy nears maturity it would be good idea to switch slowly to debt funds. You can do all this without any charges or tax implication.
What’s bad about HDFC click2invest?
1. Complex Product
As most ULIPs, HDFC click2invest too is complex product and so it would be very difficult even for a well educated person to understand all the clauses and if and buts of the plan.
2. No Tax Benefit in some cases
Single Premium and People with age of 55 Years or more even with annual premium payment would not get tax benefit as their sum assured is less than 10 times the annual premium. Unfortunately HDFC Life has not made it clear in the policy document and I am sure this would lead to some misselling!
3. There is locking of 5 years
Even if you surrender the policy before completion of 5 years, the life insurance cover ceases and the fund is transferred to Discontinued Fund (offering just 4%) and can be withdrawn only after completion of 5 Years.
4. Expensive than Liquid Mutual Funds
Though the total expense of the ULIP is less than most equity mutual funds but is higher than most liquid mutual funds. So if you want to choose the Income, Bond or Conservative Fund you would do better investing in Debt oriented Mutual Funds
5. The Returns vary with Age
Higher your age at the time of taking the policy lower would be your return. This is mainly because for higher age the mortality charges go up and dents the returns.
6. Commitment for Paying Premium for 5 Years
You need to pay the premium every year at least for 5 Years. If you don’t your life insurance cover ceases to exist and the fund is transferred to Discontinued Fund offering just 4%.
Who should invest?
Financial Advisors generally advised to keep insurance and investment separate and I too agree with them. Nevertheless HDFC Click2Invest suits those who
- Want to invest for longer maturity periods (say for more than 10 Years) as the low cost benefit accrues on longer periods
- Are young as the return would be impacted by your age (and also tax benefits)
- Would be paying Premium for at least 5 Year come what may!
- And comfortable with investing in mix of Insurance and Investment
HDFC Click2Invest ULIP is being offered only online and hence has enabled HDFC Life to cut a lot of expenses. It’s truly a low cost plan especially if you compare with ELSS (Tax Saving Mutual Funds). But as with most ULIPs, it’s a complex product to understand. Therefore most financial advisors advise to keep insurance and investment separate.
Also note that Single Premium and People with age of 55 Years or more even with annual premium payment would not get tax benefit. So anyone with age more than 55 Years should totally avoid this ULIP.
You might want to invest if you are looking for longer maturities to benefit from low cost and want to use the switching benefit for asset allocation. Personally I would keep away due to its complexity and its non-flexible nature.