An investor recently enquired about Aditya Birla Sun Life (ABSLI) Wealth Infinia plan. His bank RM has been pushing this plan aggressively.
ABSLI Wealth Infinia plan is a Unit-Linked Insurance plan (ULIP). While I am not very fond of ULIP products, I will share the product review below.
I am biased against mixing insurance and investments and do not like purchase traditional plans and ULIPs. Consider my analysis in that light.
Aditya Birla Sun Life Insurance Wealth Infinia plan: Important Features
This feature tabulation explains the features well.
- Type-I ULIP. In the event of demise of policy holder, the nominee gets the HIGHER of (Fund Value, Sum Assured). Type-I ULIPs are primarily used for investment purpose.
- Two variants. Milestone and Legacy variant.
- Milestone is a regular variant, as in any other ULIP.
- Legacy variant has minimum maturity age of 100 years. Since the death benefit in any insurance product is tax-exempt, this variant is primarily to build tax-free legacy.
- Return of premium allocation and mortality charge at the time of maturity. Good but not very useful.
- Loyalty additions and wealth booster at regular intervals (again, this is good, but does this make the product good enough?). Remember nothing comes free.
What are the various charges in ABSLI Wealth Infinia plan?
- Premium Allocation charge: Recovered from the premium installment.
- Policy Administration charge: NIL
- Mortality charge: To provide you life cover. Recovered through cancellation of units.
- Fund Management charge: Adjusted in the NAV of fund schemes
If the policyholder survives the policy term, the premium allocation charge and mortality charge will be returned to the policy holder. While this is good, we shall see later why this is NOT very useful.
The premium allocation charge is high. No wonder you can expect bank officials to push this product aggressively. Good fee income for the banks.
Note that this product is targeted at wealthy individuals. Higher the annual premium, greater the fee income.
Fund management charges are high (that’s usually the case with ULIPs). 1% p.a. even for debt funds. Closer to the cap of 1.35% for equity funds. There is capped Nifty index fund too whose fund management charge of 1.25%. In contrast. there are Nifty index mutual funds with expense ratios of 0.1 to 0.2% p.a.
Note this is type-I ULIP. Therefore, the total mortality cost will go down as the fund value increases.
The Caveat with Return of Premium Allocation and Mortality charges
ABSLI Wealth Infinia plan comes with the return of Premium Allocation and Mortality charges.
Any money is good.
However, there are caveats.
Firstly, return of premium allocation and mortality charges is applicable only if the policyholder survives the policy term and all the premiums have been paid.
If you do not survive the policy term, such return of charges is not applicable. There is no return of premium allocation and mortality if the policyholder does not survive the policy term. These charges are not added back to the death benefit.
Such return of charges is not applicable for discontinued, surrendered or reduced paid-up policies.
GST is applicable on such charges. Those taxes and levies will not be returned. Plus, any underwriting premium paid due to any health condition will not be paid back.
Finally, Rs 1 today is not the same as Rs 1 after 20 years. You get back only the nominal amounts.
The Tax Angle
Earlier, the ULIP maturity amounts were exempt from tax. However, that changed after Budget 2021.
For the ULIP(s) purchased after February 1, 2021 where the aggregate premium exceeds Rs 2.5 lacs in a financial year, the pay-out from such ULIP policies will be taxable. Note that, even in such cases, the death benefit remains exempt from tax.
ABSLI Wealth Infinia plan has minimum annual premium of Rs 2 lacs. The product is targeted at wealthy individuals. And the sales team would not settle for a low premium (less than Rs 2.5 lacs).
In the legacy variant, the minimum maturity age is 100 years. How many people live until the age of 100? You might be told that since the death benefit is not taxable, you do not have worry about paying taxes (even if you are paying a high premium). That’s right. However, any other type of withdrawal from a ULIP would be taxable.
ABSLI Wealth Infinia: What are the returns like?
There are costs that eat into the returns.
There are benefits such as loyalty addition and wealth booster that add to your returns.
I have written a lot of things above. However, from your perspective, return is the most important aspect. If the return is good, you would hardly care about this analysis.
So, what is the net return?
The problem is, with market linked products, it is not easy to estimate the returns. Just like any other market linked product, the returns will depend on the performance of the funds chosen, market trajectory etc. ULIPs are even more complex since mortality charge is recovered by cancellation of units. Therefore, your entry age will also play a role. In addition, there are loyalty additions and wealth boosters that bring an element of uncertainty.
What do we do now? We are stuck.
Well, we can approach this problem in a different way. IRDA mandates that the insurance companies use the assumed gross returns of 4% and 8% p.a. for their various illustrations in their product brochures. We can look at net returns from those illustrations and get a sense of how much product charges have eaten into the returns.
Note that the illustration includes the effect of various costs, wealth booster and loyalty additions. Thus, we will get a very fair idea.
If the difference between gross return and net return is high, we have a problem. Used this approach to compare various ULIP products before.
I pick up a couple of illustrations from product brochure.
A 35-year-old investor. Policy Term: 20 years: Premium Payment Term: 10 years. Annual Premium: Rs 2 lacs. Sum Assured: Rs 20 lacs. Milestone variant.
If the gross returns are 4% p.a., you will get Rs 30.88 lacs at the end of 20 years. The IRR is 2.82% p.a. The product has eaten almost 30% of gross returns. (1.18% out of 4%).
If the gross returns are 8% p.a., you will get Rs 55.82 lacs at the end of 20 years. The IRR is 6.73% p.a. The product has eaten almost 16% of gross returns. (1.27% out of 8%).
If you had invested in a low-cost product (say an index fund with expense/tracking error of 0.5%), gross return of 8% would have result in a net return of 7.5% p.a. You would have 62.68 lacs at the end of 20 years. That is Rs 6.86 lacs more the ULIP (at the same level of assumed gross return).
Yes, an index fund won’t give you insurance benefit, but do you need insurance? If you don’t need insurance, why would you let Rs 6.86 lacs slip?
Well, what about taxes in equity mutual funds? Take out (Rs 62.86-Rs 20 lacs) *10% = Rs 4.2 lacs in LTCG. You are better off still.
Points to Note
- This is a Type-I ULIP. As soon as the fund value exceeds Sum Assured, the life insurance component goes away in this ULIP.
- Note that 4% or 8% is an assumed gross return. The actual gross returns might be very different.
The picture is not complete yet
In life insurance products, your returns also depend on your entry age.
The above illustration was for a 35-year-old investor.
The returns will be even lower if your age at the time of entry was higher because of higher mortality cost.
Look at this piece of information from the brochure.
If you are 35-year-old male investor, the mortality charges for the first year will be about Rs (20 lacs/1000) *0.96 = Rs ~1,920 +GST.
Rs 20 lacs is the Sum Assured. Since this is a type-I ULIP, the mortality charge will go down in the subsequent years as the fund value grows.
If you are a 55-year-old male investor, the mortality charges will be about (20 lacs/1000) * 6.01= ~12,020 +GST. These higher charges will eventually come from your money.
Note that actual mortality charge will be slightly lower than what I have stated.
So, if you are 55-year-old, about Rs 14,000 (including GST) will go towards mortality charges. 6% + GST goes towards premium allocation. That is another ~Rs 14,000. So, ~28,000 out of your Rs 2 lacs premium goes costs in the first year.
Please understand this cost will go up if your annual premium was higher.
This is the legacy variant.
At gross return of 4% p.a., the maturity benefit is Rs 2.83 crores. The IRR is 2.91% p.a.
At gross return of 8% p.a., the maturity benefit is Rs 28.95 crores. The IRR is 6.91% p.a.
Note, at the premium level of Rs 5 lacs per annum, the maturity proceeds from the ULIP will be taxable.
If you invested this money in a low-cost product (say an index fund with expense/tracking error of 0.5%), the gross return of 8% would result in net return of 7.5% p.a. You would end up with Rs 40.6 crores. LTCG at 10% would be about 4 crores. You are still left with 36.6 crores.
While the illustration shows the maturity benefit, the “legacy” variant is meant for legacy (minimum maturity age is 100 years). This means the buyer is more interested in tax-free death benefit (and not in taxable maturity benefit).
ABSLI Wealth Infinia: Should you invest?
If you must invest in a ULIP for investment purpose, a Type-I ULIP is a good vehicle. And ABSLI Wealth Infinia is a type-I ULIP.
Additionally, the current generation of ULIPs are much a leaner and cheaper avatar of toxic ULIPs we used to see in 2000-2010 decade. Plus, in many cases, the buyer (who may not be much financially aware) might find merit in pay out structures that ULIPs might offer. Sub-optimal but easier for mental mapping for less aware investors. Fine.
And I wrote these posts before the ULIPs became taxable.
I reproduce a few reasons for my aversion.
- You can’t exit an underperformer in ULIPs.
- You pay for life insurance you may not need.
- You pay much more for life insurance than you would in a term plan.
- Fund management cost is usually very high.
ABSLI Wealth Infinia plan has all these issues. We have already seen the impact of various charges on the product returns earlier in the post.
The product is aimed at wealthy individuals. Quite likely that they do not need life insurance. Even if they do, a term life insurance is a cheaper vehicle to purchase insurance.
With that premise, a low-cost investment product will do a better job.
A few points to note
If the annual premium exceeds Rs 2.5 lacs, the maturity proceeds will be taxable. Tax-free rebalancing feature of ULIP won’t work either.
If you are old, do not buy ULIPs. Read this egregious example about how a senior citizen invested Rs 3.2 lacs and got Rs 11,678 after 6 years.
Suggestion: Do not invest in ABSLI Wealth Infinia (unless you see a very specific use case).
ABSLI Wealth Infinia Product Brochure (for product features and illustrations)