For the section of term insurance seekers who are still hesitant about the lack of returns from the product, ICICI Prudential has launched ICICI Pru Protect N Gain — a product that combines the investment avenues available in a ULIP and the features of a term insurance. Return of premium and zero cost term insurance allow for recouping the premiums, but this product allows for compounding the premiums before they are returned. Here we compare the product with alternatives in the market.

Investment and insurance

At the outset, it must be established that a pure term insurance for protection and other avenues for investment should be the ideal combination in a financial portfolio. Seeking insurance from an investment product or vice-versa dilutes both avenues, resulting in a compromised protection and investment portfolio.

Return of premium (RoP) products in term insurance allowed plough-back of premiums paid (ex of GST) at the end of the policy term. But these policies were typically priced at double the cost of a normal term insurance for the same sum assured amount. If the premium for a ₹1-crore sum assured was ₹15,000 for a 30-year old male, a return of premium policy would have charged ₹30,000 yearly premium for the same.

Zero cost term insurance policies addressed the same issue of premium return as long as the policies were surrendered in a specific window of 55-65 years of age and the policy term ranged at 30-40 years. Once all financial responsibilities are wrapped up as one enters the age limit and the policyholder surrenders the policy, premiums are returned again ex of GST. The plans are a feature in most regular policies and do not cost extra on the premiums.

Both the above options returned premiums without compounding the invested amount. Over a policy period of 20-30 years, compounding can add a lot of value and that is where ICICI protect n gain proposes a way out.

ICICI Protect N Gain

The policyholder can first decide on the sum assured he is looking for, based on which the premium is calculated factoring in investment, age, education, and other relevant factors. The premiums, net of administration charges, will then be split into a mortality charge for protection and the rest is invested in any of the 18 funds (debt to equity) that policyholder dictates. The policyholder can also make unlimited charges to fund allocation at zero cost during the policy term. This is the investment arm of the product.

The product allows up to 100 times life cover for the annual premium paid, including accidental death and permanent disability. This, compared to 10 times in a traditional ULIP, aligns the product towards a term insurance rather than ULIP. Although it must be pointed that a pure term insurance can provide 500-600 times life cover per annual premium since no investment outflow is involved.

For instance, a person paying a premium of ₹1.25 lakh in ICICI Pru Protect N Gain for 10 years of premium paying period, will get a life, accidental death and permanent disability cover of ₹1 crore for the policy term of 40 years. At the end of policy term, the policyholder will be paid the fund value. The illustration points to a fund value of ₹87 lakh when invested funds are compounded at 8 per cent, which is an XIRR of 5.6 per cent. The difference is on account of charges towards mortality and administration charges from the premium.

Our take

ICICI Pru Protect N Gain provides a larger cover and remaining investment funds are compounded with market-linked products. Policyholders looking for yields in insurance can opt for such products. There is also a tax exemption on maturity funds if cumulative annual premiums are lower than ₹2.5 lakh. But as mentioned, the ideal way is to separate insurance and investments. A ₹1-crore life cover can be secured with ₹15,000 per annum premium towards pure term insurance, which frees up a lot more funds for pursuing other investment options.  

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