Cheapest ULIP Plan

For the last 5 years, I have been tracking ULIPs (Unit Linked Insurance Plan). I visited sites of all major insurance companies and concluded that these products were too expensive. With very high administrative charges and premium allocation charges, ULIPs just did not match Mutual Funds. Fund management expenses were as high as mutual funds and in some cases, even higher.

Last year, one plan which caught my attention, that was Bajaj Allianz's IGain. It is available only online and there is no agent selling this policy. My queries got answered from their call center and product managers over e-mail and phone. Brochures were self explanatory and online illustrations helped me understand the charges better. The key points I liked
1. No premium allocation charge (for annual premiums more than Rs 2 lakhs)
2. Administration charge capped at Rs 100 per month or whereabouts
3. Mortality charge declines as the fund grows. For a sum assured of 5 times annual premium, in 5 years, mortality charge declines to zero. By the 6th year, my major expense was fund management charge alone.
4. Choice of midcap fund as an investment option. This option was not available in any other ULIP plan at that point in time. Also, in case of mutual funds, I found an entry and exit load in the range of 2 to 3% and fund management charge in excess of 2.25%. IGain asked for 1.75% as expenses.
5. No charge of switches, partial withdrawal and surrender of policy (after a certain duration).

I took 3 months after I got my queries answered from Bajaj Allianz to make a decision in favor of investing in this plan. I waited for any surprises and did not find any.....!

I recently compared IGain with ICICI Prudential LifeStage Pension which despite having no premium allocation charge, lost out on high fund management charge and administration charge. So much so that IGain offers tax benefits, free insurance (5X) and still delivers more returns.

I am now waiting for IGain expenses to further decline (post IRDA norms). Will Bajaj Allianz oblige? We will know in January 2010.

Update (4th January, 2010) - Bajaj Allianz has announced IGain II, which has essentially reduced fund management charges to 1.35% for most equity funds.  There is no change in mortality charges (disappointing!), however, on the plus side, policy term has been extended to 30 years. The net yield worked out to be 8.55% (using 10% IRDA benchmark), which is pretty good comparing it with mutual funds and other ULIPs.