Complicated and expensive, not for long term

PRODUCT ANALYSIS: Birla Sun Life Insurance Foresight Plan

Birla Sun Life Insurance’s unit linked insurance policy (Ulip) — Foresight Plan — gives the customer a choice between managing his own fund or opting for a guaranteed minimum maturity benefit. The latter is similar to a highest NAV (net asset value) guaranteed product. Premiums can be paid in a lump sum or for a period of five years only, though the maturity period is 10 years. For the self-managed option, there are 10 funds ranging from pure debt to pure equity.

Risk-averse customers could opt for the 11th fund, called the Foresight fund, which gives a guaranteed minimum maturity benefit. The fund tracks the net invested premium (NIP) for each year and assigns it a net value (NIP Value) and a guaranteed value (NIP Guaranteed Value). While NIP Value represents the current value of a particular NIP invested in the Foresight plan, the NIP Guaranteed Value represents the minimum value guaranteed at maturity on a particular NIP. The sum of all the NIP Values is the fund value for the policy and the sum of all the NIP guaranteed values, the guaranteed minimum maturity benefit for the policy.

In case of death of the life insured, the nominee would receive the prevailing fund value, along with the sum assured. On maturity, one will get the fund value. Those who opted for the guaranteed option will receive the higher of the fund value (in seven years) or the guaranteed minimum maturity benefit (at the end of five years) when their policy matures.

When the equity markets are down, the guarantee would cap the downside in the market. When the markets are up, customers can expect a fund value higher than the minimum guaranteed amount at the time of maturity. However, insurance experts warn that schemes that cap the equity downside also offer only limited benefits even when the equity markets are up. So, typically, once a highest NAV guarantee fund has achieved its highest NAV, it shifts its investments from a high-return equity portfolio to a safer, but lower-return debt portfolio. This scheme will work similarly. You would also be paying an extra fund management charge for opting for the guaranteed benefit. The fund management charge of 1.35 per cent will increase by 0.25 per cent for single-pay customers and 0.40 per cent for five-pay customers.

Analysts point out that with the product being comparable to other existing highest NAV products, one should look at the combined cost of guarantee plus the fund management charges. Compared to the others, the Foresight Plan’s 1.75 per cent is among the highest. If you are planning to invest in the self-managed option of this product, it would be best to do so in funds whose objectives match with yours.

According to financial advisors, the Foresight fund may not be the best option for those with a long investment horizon. Such investors should be looking at equity investments instead. Debt-oriented investment schemes are more suited for those with short-term goals.