Are NAV Guarantee Policies Good? | NAV Policies Risk Factors

January 31st, 2013| Uncategorized.

Are NAV Guarantee Policies Good?| NAV Policies Risk Factors
In the view of the People, Insurance means only Endowments policy, which is happening in olden days. But from the last five years people learned that Insurance has many policies like Term, Endowments and ULIP policies.  Unit Linked Policy has become more popular from the last four to five years.  But two years back due to the huge fall in the share market the people stepped a little back to take the ULIP policies. The insurance companies have introduced a NAV means Net Asset value guaranteed policies by observing the situational flow.  The insurance companies are saying that the public is taking more interest on taking NAV guaranteed ULIP policies at present.   Birla Life Insurance is the first insurance company which introduced NAV guarantee policy called Platinum Plus policy on June ‘2008.  After Birla life insurance, the number of other companies also introduced similar type of NAV guarantee policies like Smart ULIP from SBI life, Wealth Plus from LIC, Max Gain from Bajaj Allianz, Apex Invest Assure from TATA AIG and Reliance Highest NAV Guarantee plans are came into market.

The insurance people saying that the customer has to purchase this ULIP policy at a unit cost of Rs. 10/- and think that the price is increased to Rs. 80/- after some period. Suppose at the time of Maturity if the unit value was decreased to Rs. 40/- the company will calculates the unit value as Rs. 80/- and gives that sum to the customer.  Suppose if the unit value is increased to Rs. 120/- then the company calculates the unit value to that amount and that premium amount will be given to the customer.   In this way the policy holder is getting the profitable amount even though the share market is fluctuating at the time of his policy maturity.  This is one of the main reasons why more number of people are getting attracted to this type of policies.  In these schemes the insurance company is giving guarantee to the NAV but not investment made by the customer. For example a customer invested an amount of Rs. 50,000/- in the first year, after the deduction of service charges and Agent commission the company gives the NAV guarantee to the units which are allocated after deductions i.e. Rs. 43,000/- but not the total investment i.e. Rs. 50,000/-.  Because the company is giving the guarantee to the customer’s investment due to this they will charges some part of the amount as a guarantee fee.  There may some slight variation in the collecting guarantee charges between the insurance companies.  Only the policy holders who stayed till the date of maturity only will get the total NAV Guaranteed amount.  If the policy holder surrendered his policy in between then he won’t get the guaranteed amount.  When compare to the SBI Life Smart ULIP, the charges in the LIC wealth plus is little amount low.  In the LIC wealth plus policy the total NAV guaranteed amount which is paid after maturity will be comes to the customer hand with in a period of 8 years and in addition to that an insurance will be provided for another two years for the policy holder.  The Smart ULIP which is given by the SBI life Maturity is 10 years but one can clearly observe that in the unit linked policies the maturity income which is coming from the SBI Life ULIPS is more when compare to the maturity income from the LIC ULIPS.

The Risk factor is less because of the NAV Guarantee is given by the company results the income is less when compare to the pure equity fund.  The another disadvantage is that they are giving around not more than five to ten times of the life insurance coverage to these policies when compared to the policies which are taken in person.  The people who want more income and more insurance coverage can go to term plan, and for the long term investment it is recommendable to go for a Diversified Mutual fund.