Too complicated for comfort

Flexible premium products provide flexibility in terms of the premium and sum assured.

When Gopi Vyas heard of flexible insurance policies being launched, she decided it was time to meet her financial advisor. There were a number of questions related to the meaning of ‘flexibility’ in her mind.

Could she vary the premium according to her convenience, decide on the tenure of the premium, increase or decrease the sum assured of her policy midway? With the revised norms for Unit Linked Insurance Products (Ulips), insurers are seeking to differentiate their products by offering more flexibility to customers. Flexible premium is one such product. Some of the recently launched flexible Ulips include HDFC SL Progrowth Flexi, ING Prospering Life SP, Future Generali Nivesh Preferred and Max New York Life Flexi Fortune.

Flexibility in payment tenure
Customers can change their premium-paying period without losing the cover. For instance, the newly launched HDFC policy gives an option to reduce the tenure of the premium. If one has opted for a 10-year term, he can choose to stop premiums after the first five years. Similarly, in case of a premium period of 15 years or more, he can choose to pay for 10 years only.

According to Anil Sahgal, founder of financial portal i-save.com, “Individuals with uncertain incomes or those who are not sure about committing to paying premiums for the full term of the policy may find such Ulips convenient. It allows them to pay for a limited period and yet enjoy cover for the full term.”

Flexibility in sum assured
Suppose a customer purchases a Future Generali product that offers five times the cover in the first year on a premium of Rs 50,000. His first-year cover would be Rs 2.5 lakh. If he opts for a reduction in the sum assured from the second year, his cover reduces 125 per cent of his premium — Rs 62,500 from the second year onwards. This is unlike regular policies in which the sum assured remains the same for the whole term.

“Flexi Fortune allows an automatic 10 per cent increase in the sum assured each year as a measure against inflation, provided the premium stays constant,” says Manik Nangia, senior vice-president & head-product manager, Max New York Life.

“However, from an insurance perspective, reducing cover may not be a good idea, especially if one’s responsibilities are going to increase in future,” says certified financial planner Arvind Rao. Individuals looking at Ulips as an investment product or as tax saving instruments are likely to go for these policies, say advisors.

Other benefits
Some of the new policies are making it lucrative for investors to remain with the insurer even after maturity.

Both HDFC and Future Generali offer customers the option to remain invested in the funds for a period of up to five years after maturity. This would let customers draw down the maturity benefit in periodic instalments. However, this option comes with a price for fund management and a reduced policy administration charge on the invested funds.

Cost savings
Flexible products, however, don’t mean cost savings. When premiums stop, fresh investments stop as well. However, the administrative, mortality and fund management charges remain in force throughout the policy term. These amounts are recovered from the corpus already created. So, while the sum assured remains intact, the returns come down.

Financial experts say customers should identify their needs and compare products before buying. Both HDFC and ING products are regular premium products with limited premium payment term options and should be compared with other regular premium products. Future Generali’s Nivesh Preferred should be compared with single-premium products.