Capital Guarantee ULIP: Check before you buy

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Normal ULIP plan never guarantee any amount on maturity.

Because of this they are loosing their shine in the current market environment. In uncertain market condition people do not wants to take risk on their investment.

This fact made insurer come out with a rather experimental insurance product Capital Guarantee ULIPS.

ICICI Pru’ Invest Shield and Reliance Super Invest Assure plus plans are an example of such ulips. There are plans available from Kotak Life Insurance (Kotak Safe Investment plan II) and Bajaj Allianz Life Insurance (Capital Shield).

What are Capital Guarantee ULIPS?

Unlike normal ULIP, which do not guarantee any return on your investment CGU promise you your invested amount (that is capital guarantee) at maturity apart from chance of earning higher.

This means if your investment runs negative you will get what you have invested and in case it moves up you will get higher return.

Most of other benefits are similar to ULIPS.

Should I opt for Capital Guarantee ULIPs?

The concept of CGU is really good as you get high return if market moves up and in case it moves down you are not loosing your invested amount.

However the safety comes with a cost.

Most of the capital guarantee plan has a very high surrender charges, allocation charges.

Number of funds is less and in addition most of the funds are debt based which minimize the risk which in turn minimizes the returns.

Capital guarantee.

The most important point in such plans is Capital guarantee on net amount (that is amount invested after deducting charges) or the gross amount that one has invested.

For eg. If you have invested Rs. 10,000 and capital guarantee is on net amount of Rs. 7000(as Rs. 3000 is deducted as charges) then actual return is negative.

Checklist:

1) Charges: Understand the charge structure.

2) Surrender: Check what if you surrender early.

3) Capital guarantee: Most plan provide capital guarantee on net amount however few comes with interesting features such as loyalty additions opt for such plans.

In current market condition CGU are good alternative to normal ULIPS, however according to me one must stay away from such products because in most products capital guarantee is on net amount and as they offer capital guarantee their fund options tend to be conservative; that is more toward debt side. So instead of buying capital guarantee plan go for term insurance for risk cover and put rest of the money in FD.

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