I have been advised that Metlife Smart Plus is an ideal investment from the angles of insurance, high returns and tax savings. May I have the views of learned friends please. Thanks in advance.
Hi,
This seems to be Unit Linked Insurance Plan. While considering any ULIP, please ensure following:
1. What are premium allocation charges - These are charges first deducted from your premium and then balance amount is invested. It varies from 2%-60%. If PAC are 20%, out of your premium of 1lac, only 80,000 would be invested. (Practically it takes more than 25% ROI to cover your cost)
2. What are Policy administration charges of the plan you are investing in. These are normally deducted as "cancellation of units" from your holding. Higher Policy administration charges = Higher Units deducted from Holding
3. What are Fund Charges. These are normally adjusted in NAV. Higher Fund Charges = Lesser NAV.
4. As per Insurance Regulator and Development Authority, No ULIP can guarantee return on investments (beacuse your principal amount is also at stake).
5. Also, as per IRDA, no insurance company can provide benefit illustraion with return more than 10% p.a.
6. What are the surrender charges if you wish to withdraw in interim. Practically, there is hardly any benefit if you surrender before 8-9 years.
7. What are the mortality charges - These are the charges for your insurance cover and varies as per your age. These are also generally deducted from your holding units. Higher Mortality Charges = Higher Units Deducted from Holding.
8. What is Death Benefit - Whether it is either sum assured or fund value, whichever is higher? It is advisable to invest in such plans which have SA + Fund Value as death benefit, beacuse you are paying mortality charges for insurance cover.
9. What are the charges for Rider Benefits - These are the charges for additional benefits, like accident, disability, etc for which additional charges are deducted as "cancellation of units" from your holding. Higher Mortality Charges = Higher Units Deducted from Holding.
I do not intend to discourage you from investing in Metlife Smart Plus. But have you considered combination of Term Plan + Mutual Funds. i.e. Taking a term plan which is pure insurance cover at very low premiums with return of premium on maturity and remaining big chunk of your money to be invested in mutual fund (risk is same in both MF and ULIP).
Benefits of this combination:
By investing in Mututal Funds you can save your taxes as well as premium allocation charges that are deducted upfront in ULIP. Also, you can save your monthly charges for Policy Administration and Fund Management. There are no surrender charges incase of Mututal Fund, which one has to pay for ULIP.
In addition to that, Term plans also come with limited premium payment options. For Mututal Funds you can either buy at your convinience or go for SIP.
Besides above, you also need to ensure that you have proper insurance cover for the support of surviving family.
Suppose your annual expenses are 2,50,000 in family of 5 members and you are the only earning member. You need insurance to protect your family from financial crisis in case of your untimely death.
Assuming family does not have Fixed Income investments, you would need insurance cover of atleast 20lacs and investment (MF) of such an amount that it gives you sufficient funds on maturity to meet your childrens education and marriage expenses.
I assume above information would be helpful for your to plan your insurance, investment and tax benefits.
I am a Financial Consultant by profession and also insurance consultant for Bajaj Allianz. Should you need any help to clear your doubts further, please let me know.
Regards