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How Return On Mortality Charge In ULIP Works

Unit Linked Insurance Plans (ULIPs) have emerged as a befitting investment vehicle, post the many significant regulatory reforms introduced between 2010 and 2013. More and more investors are investing in ULIPs for their life goals as the asset class has shown a consistent fund performance record over the long term. Further, charges in new-age ULIPs are capped and spread over a longer time frame, coupled with features such as fund switching, premium redirection in keeping with the changing market reality, and tax benefits have also contributed to the increasing popularity of ULIPs.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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Investors today also find ULIPs attractive because they are the only equity-linked investment options that continue to be tax-free. They have been exempt from the Long Term Capital Gain (LTCG) tax introduced in the Union Budget of 2018.

In continuation to the constant evolution of ULIPs for becoming a preferred investment choice for retail investors, Bajaj Allianz Life Insurance has further introduced a unique feature in ULIPs that not only brings down the cost of the product but also enhances the maturity corpus for the investors. The Return of Mortality Charges (RoMC) feature in our new-age ULIP Bajaj Allianz Life Goal Assure is a case in point.

Return of Mortality Charges: Setting new benchmarks

Think of a policyholder who opts for a ` 10-lakh insurance cover with ` 1 lakh as annual premium. Let's suppose, he/she passes away after paying only the third quarterly installment, that is, a total of just ` 75,000. In such a scenario, the insurance company still has to pay his/her survivors the promised life cover of ` 10 lakh.

This is the risk that an insurance company takes for providing you an insurance cover. Mortality charge is the cost of this 'risk' that investors pay to an insurance company. Now, if an insurance company is returning the mortality charges when the policy matures - it is like paying you back from its earnings, and it also means that you will get an enhanced corpus on maturity which includes the mortality charges.

In a first of its kind initiative, we have further enhanced the appeal of ULIPs and made it more investor-friendly by returning the mortality charge, which a policyholder pays during the course of the policy. RoMC has undoubtedly set a new benchmark within the Indian life insurance industry.

Investor-friendly feature

Typically, the overall cost of ULIPs is between 2-4% of the fund value. Within this, the mortality charge is calculated per annum per ` 1,000 life cover, and the rate depends on various factors, including age, sum assured, gender of the policyholder, etc.

Let's understand the benefit of Return of Mortality charges with the following example.

Let's assume a 30-year-old invests `10 lakh every year in Bajaj Allianz Life Goal Assure for a Sum Assured of ` 1 crore. His policy term and premium payment term are for 20 years and he chooses to invest in Pure Stock Fund ll using Investor Selectable Portfolio Strategy. During the 20 year policy term, the mortality charges deducted for providing the insurance cover is `36,883 with assumed rate of return @ 4% or `32,519 with assumed rate of return @ 8% returns. With Bajaj Allianz Life Goal Assure, the policyholder will simply get back this mortality charge when the policy matures at the end of the 20th year. Thus, the investor adds a considerable amount of ` 36,883 or ` 32,519 to his overall fund value on maturity. His Maturity Amount including Return of Life Cover Charges will be:

Return Fund Value at Maturity (A) Return Of Mortality Charges (ROMC) (B) Maturity Benefit (A+B)
@ 4% 26,726,270 36,883 26,763,153
@ 8% 41,471,383 32,519 41,503,902

Returning the mortality charges back to the investors enhances their maturity corpus and is also a way of rewarding them for staying invested to achieve their life goals.

As we continue to provide more benefits to our policyholders while they are invested with us, we have added one more unique feature in Bajaj Allianz Life Goal Assure called Return Enhancer that further increases their corpus on maturity.

From the above example, if on maturity, the 30-year old male opts to receive the proceeds in instalments (and not a lump sum) over a period of five years, then he gets the benefit of Return Enhancer, which is an addition of 0.5% of each due instalment. Thus, with return Enhancer the investor's fund value increases to ` 2.81 crores @4% from ` 2.67 crores (refer to the above table). Similarly, at 8% returns, the fund value after Return Enhancer increases to ` 4.71 crores from ` 4.15 crores.

Both these benefits in our new-age ULIPs surely make them a more lucrative investment option as they enhance the benefits on maturity, backed by consistent fund performance, thus making ULIPs more investor-friendly in the long term.

Disclaimers:
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#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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