This gentleman, now in his middle years, holds the very first Unit Linked Policy sold by me after it was introduced in Jan 2004. His policy no.1XXX030X issued on 29 Mar 04 is called Unit Linked Endowment Plan. When contacted, this man was all sold to LIC's strength and pedigree and was reluctant to look at any other company’s plans. On great persuasion and convincing that, the HDFC Std Life Ins Co Ltd is no ordinary company, he agreed to go for a policy with it. HDFC SLIC is in fact a joint venture between two conservative giants i.e. Standard Life Insurance Co of Europe with 170 year standing and HDFC group which is held in high esteem not only in India but the world over where the FIIs have taken up stakes to fullest extent possible under the rules. It may surprise you but the Housing Development and Finance Corp. Ltd, the parent company, has annual profits of about Rs.1500 crs per year and may fulfill funding requirements of HDFC SLIC as its business grows.
The policyholder works with a private organisation and has many commitments in respect of savings qualifying for rebate under section 80 C. This policy has risk cover of just one lac rupees and he is charged about Rs 350/- per year as risk cover charges, which are adjusted by cancellation of units on monthly basis. The annual premium amount of Rs 10000/ is paid by him in quarterly installments of Rs. 2500/- .He has so far paid 13 such installments of premiums totaling Rs.32500/-. The amount that has gone in to investment in net Rs.26975/- as on first two years premiums 27% was deducted as companies charges amounting to Rs.5400/- and further premiums were invested to the extent of 99%. He holds 361 units of balanced fund and 412 units of growth fund as on 13.04.07 and the fund value stands at Rs.37151/-. The returns have been of the order of 24% per annum. The policy was sold to him for the sake of higher returns/growth as he had no further requirement for risk cover otherwise.
He has following options with him under provisions of policy:
1. He may withdraw money out of the policy fund at any time leaving just a balance of Rs.10000/- , without any deduction and without any tax incidence, in one or more installments. No interest is payable on the amount withdrawn and there would not be any commitment to pay it back. So long as the minimum policy fund is maintained at more than Rs.10000/- the policy will remain in force and the risk cover continues.
2. He has option of topping up monies, which will go straight in to investment in the fund/s of his choice in the desired proportion to the extent of 99%. These topped amounts qualify under section 80 C for tax rebate.
3.He will not be charged any tax on the gains under the policy at any time by virtue of section 10(10) D which says that if the total premium paid in a year is less than 20% of the sum assured no tax would payable on returns. Therefore, he will have to make sure that during the year the amounts topped up plus the regular premiums are not in excess of 20% of risk cover i.e. the sum assured.
4. He has the option of going on premium holiday and later resuming the premium payments.
5. Common to all unit linked plans, he can switch between the funds without attracting charges for twenty four times in a year. The fund value is after the fund management charges of 0.80%, the lowest in industry.
6. Needles to say that he can surrender the policy and get his full fund value without any deduction as three years have passed.I do hope that you have good idea how the policy works.
Hari Om
Krishna Kumar Khandelwal
P.S. Option to switch funds was excercised just once since beginning.
2. Presently the company give risk cover of up to 40 times of the annual premium. The option to take the Critical Illness cover and accident risk cover for an equivalent amount is also there.
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