Reap it all at once or in chunks?

With Ulips offering settlement options now, here’s what you should know

MUMBAI: With insurance products becoming investment-oriented, several unit-linked insurance products have started offering facilities meant for investment products. A recent introduction is the settlement option, wherein one can decide whether to get the maturity gains in one lump sum amount or in instalments.

The instalments can be yearly, half-yearly, quarterly or monthly, as requested, over a maximum period of 5 years. Each instalment would be equal to the fund value a person has accumulated over the years divided by the number of instalments chosen by him. At any instalment, though, the policyholder can ask for the entire remaining fund value to be withdrawn. Most insurers offer the monthly instalment facility only through electronic clearing service in cities where the facility is available.

Ulips such as Life Insurance Corporation’s Profit Plus and Fortune Plus, ING Vysya Life Insurance’s Positive Life, ICICI Prudential’s Lifetime Super and Bajaj Allianz Life’s New Unit Gain Plus SP Plan offer settlement options.

An investor opting for disbursement of the maturity amount in instalments would have to pay all the charges that one normally pays on Ulip products, including fund management charge. However, the risk cover would not be available, which means, if you die during the period over which the instalments are to be paid, you would not be paid the death benefit. Predictably, the mortality charge, too, would not be charged during the settlement period.

The best part about this facility is that one can decide whether to take a lump sum amount or part-payments at the time of getting the maturity value. Looking at various conditions prevailing at the time of maturity, one can decide which option to take.

But, what should one look for while deciding between the two options? First, check the return on investment that the Ulip has given you; in other words, how much your money has grown by. If it has given you a low return, it makes sense to withdraw the entire amount and park it where it will grow faster.

Ajit Singh Dhingra, managing director of Prudent Insurance Brokers, says, “If your money can grow faster elsewhere, it is advised that you take out the whole amount on the maturity date. However, if the returns have been good enough, then see whether you need the money immediately… If the money is needed to send your child to college, you may take the instalment option and set the instalments when his yearly college fee is due for payment.”

Inversely, if it’s your daughter’s marriage, you may need to withdraw the entire amount at one go. Sometimes, the value of your fund, if invested entirely in equity markets, would be low because the equity markets are not doing well at that point in time. In such a situation, an instalment option would work better so that you average out the net asset value (NAV) of your fund.

As you would be taking the money in instalments, some of the instalments may be at a lower NAV, while others would be at a higher NAV, thus averaging out.

Remember that all this would come at a cost. The insurance company would charge fund management fees on the amount it is managing during the instalment period.

The charge would be as a percentage of the amount managed. However, if the market has entered a bull phase around the time your policy matures, you may withdraw the entire amount and invest it in a safer haven.