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  4. Could you please advise me what should I do with the below ULIP policy which I took in Sep 2009

Could you please advise me what should I do with the below ULIP policy which I took in Sep 2009

Could you please advise me what should I do with the below ULIP policy which I took in Sep 2009, without even understanding about it? Abosolute returns after almost 7yrs is ~38%, XIRR is ~9%, Product name ICIC Pru Life Stage Pension - Monthly premium Rs. 1250, Total Investment 1,03,750, Fund Value 1,43,417. From what I understand now, surrender value is 2% upto 6yrs and if 1% after 7-9yrs. Though its just a matter of 1-2 more months to complete 7yrs, I guess 1% does not make much of difference. However, the whole surrender value will be added to my annual income and will be fully taxable. Also from my discussion with one of the ICICI Pru executive, I was told that if I surrender the policy and reinvest the amount to any of their other investment options the whole process would work behind the curtains and I can save income tax on the surrender amount i.e they would not remit the surrender value to my bank account rather internally move it to any of my desired investment option. Therefore, I would appreciate if you can advise on how to proceed on this, also if you can suggest a MF or any other investing option by ICICI to choose from?

Jul 26, 2016 by Ajin Thomas, Ghaziabad  |   Life Insurance

ICICI Prudential LifeStage Pension Plan is a Unit Linked Pension Plan (ULPP). Unlike traditional insurance plans or Unit Linked Insurance Plans (ULIPs), the surrender proceeds of Unit Linked Pension Plans are taxable. Further, you have to pay back the 80C benefits claimed by you on this policy over the years, if you surrender an Unit linked pension policy before surrender.

We cannot comment on the conversation you had with your insurance executive. If you surrender your policy, then you have a tax obligation as discussed above. Maybe, your insurance executive may recommend that, you switch to other portfolio strategies (fund options) within the same plan. ICICI Prudential LifeStage Pension Plan has multiple investment / fund options, but we cannot comment if one fund or more fund options are definitely better than the others. You should know that Unit Linked Pension Plans are subject to market risks. In any case, if you are invested in a pension plan, please note that on maturity of the policy, only one third of the maturity proceeds is commuted and available to you in lump sum (tax free). The balance is invested in an annuity plan to give you pension, but your pension income is taxable as per your income tax slab.

In the last 7 years top performing ELSS Mutual Funds have given a tax free XIRR of 15 – 19% (please see our Top Performing SIP Mutual Fund Plans - ELSS Funds), as opposed to the 9% XIRR that you have mentioned in your query. If you are ready to bear the surrender charges and tax consequences discussed in the first paragraph, you can surrender your policy and invest in tax saver mutual funds (ELSS), so that you can get income tax savings like your insurance policy. You need to make a decision, based on your own financial objectives. If required, you should consult with a financial advisor.

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