Two Policies Sold

Why were the two policies sold to Mr Injamuri toxic?

Highest NAV Plan: The Highest NAV plan sold to Mr Injamuri has a 15-year term with an insurance component that is only 1.1 times the premium. It was issued in the name of family members since he did not meet the age criterion. The concept of highest NAV is misunderstood even by the financially savvy. First, the NAV is recorded on a daily basis for the policy term and the guarantee applies only to units available in the policyholders’ funds at the end of the term. It means that Mr Injamuri’s family would receive the highest NAV only after staying with the plan for 15 years. Often, investors confuse high equity-like returns with the ‘highest NAV’ offer. Moneylife has always maintained that ‘highest’ NAV unit-linked insurance plans (ULIPs) give sub-optimal results and confuse the customers. This is because to lock up the ‘highest NAV’, the bulk of the money has to go into debt instruments and so the returns would be commensurate.

Classic ULIP—Midcap fund option: This is a regular ULIP which puts the investment component after charges (like premium allocation and policy administrative charges) in a midcap equity fund.

The insurance component is only 1.1 times the premium and, in Mr Injamuri’s policy, the duration was 13-15 years. If surrendered in less than five years, there is also a surrender charge and balance will be paid out only after five years are completed.

Mr Injamuri is completely clueless about stock market; yet midcap fund option was chosen by the advisor.