Is HDFC Life Click 2 Retire Pension Plan – A Worthy Investment?

In one of the previous articles, I had explained everything about the Click 2 Retire Pension Plan from HDFC Life. Now that you know all the details, it is time for me to share my views on the product. After all, you can actually find most of the info that I listed out in the previous article in the product’s brochure or pamphlet.

Just to Recap, HDFC Life Click 2 Retire is a Unit Linked Insurance Plan that is aimed at helping individuals accumulate a corpus for their Retirement Life that would guarantee a Steady Pension for their golden years. The purpose of this article is to review the plus points as well as minus points of this product. 

Plus Points of the Click 2 Retire Pension Plan

There are many good things about this product. Let’s review them one by one.

Reason 1: Easy to Use – Online Application Process

In this day and age where people want to spend more time with their families and less time at banks & insurance companies. Any product that offers an easy online application and sign-up process is always a great choice for customers…

Reason 2: A Good Choice for Regular Pension during Retirement

India is one of those countries that does not have a robust Social Security System. A Recent Study conducted by Mercer Corp, actually analysed the Pension Schemes & options available in various countries across the Globe and guess where India Ranked? Our Index score was 40.3 out of 100. The Analysis from Mercer mentioned our system as “A System that has some Desirable features, but also has Major Weaknesses and/or Omissions that need to be addressed. Without these Improvements, its efficacy and sustainability are in Doubt”

Except the Employee Provident Fund and Employee Pension Scheme that is available only for salaried employees of registered companies, we have nothing else. The National Pension Scheme hasn’t gained much traction and we still have a long way to go until our Retirement or Pension System is good enough. So, I would say this analysis by Mercer is quite accurate…

At the end of the day, it is up to the citizens of this country to set up enough financial avenues for their retirement years. This Click 2 Retire is a good product for people to save money regularly and eventually save up a Nest Egg that can generate regular pension for Retirement.

Reason 3: Guaranteed Maturity Benefits

One of the biggest complaints about ULIP Plans so far has been the fact that, agents and advisors put up fancy earnings projections with 12% or 15% rate of returns and convince investors that the product is some awesome deal. In reality, most such products were high priced and haven’t been able to generate even decent returns for its investors. One of the key highlights of this plan is the fact that, HDFC Life Guarantees the Minimum Amount you will receive when your investment matures. If your fund has performed well, obviously you will get a much higher amount but at least the downside is guaranteed which is a Good thing because – we Indians as a group are a very Risk Averse bunch and prefer Guarantees than Uncertainties…

Reason 4: Low Fee Structure

I have reviewed quite a few ULIP Products in the past few years in blog as well as my books and to be honest with you, this plan is one of the few plans where the fees are quite reasonable. If you go back to the article that explains the features of the HDFC Click 2 Retire Plan, you will see that there is a Fund Management Charge of 1.35% and an Investment Guarantee charge of either 0.1% or 0.5% which means, the overall fees you will end up paying will be between 1.5% to 2% which is quite reasonable.

Reason 5: Tax Benefits

Actually speaking, I shouldn’t be adding Tax Benefits as a plus-point here because almost all ULIP Plans available in the market these days actually offer tax benefits. But still, truth be told, by investing in this product, you are going to reduce your tax liability every year which again is a Plus Point, isn’t it?

Reason 6: Planned Equity Exposure

I have been a strong supporter of Equity Investments for long-term financial planning by considering the earning potential Equities has over a period of many years. At the same time, Equity markets can be unpredictable in the near term and if you stay with a heavy Equity Exposure towards the end of your investment tenure, you may lose out a lot due to short-term volatility. This Click 2 Retire Plan starts off with a substantial Equity allocation and years go by, the % allocation towards Equity is gradually reduced. Towards the end of your investment, the fund aims to preserve the corpus you have accumulated so far which again is a Plus Point.

Minus Points of the Click 2 Retire Pension Plan

As with any investment product, there are two sides of the coin. We just covered all the plus points of this product and it is only fair if we cover the negatives, isn’t it?

Reason 1: No Flexibility to Choose Investment Options

Though this plan has an investment philosophy where they start off with a high Equity exposure and move on towards Safer options as time goes by, the limitation that the customer doesn’t have the flexibility to choose where he wants his money. Let’s say, after 10 years, if I wanted to have a higher Equity Exposure and am willing to bear the risk, the product wouldn’t allow me.

Yes, moving towards Fixed Income options towards the end will help protect my Nest Egg but, it wouldn’t help my Egg grow much wouldn’t it?

Reason 2: No Insurance Coverage

Though the term ULIP Actually refers to a Unit Linked Insurance Plan, this product is actually a Pension Plan and has No Insurance Coverage. In case the policy holder dies during the policy duration, his family will get the higher of either the Fund Value or 105% of the Premiums paid so far. Though the value of the deceased investor’s investment or 105% of the money paid as premiums is available to his/her family the point here is that, that’s all they get. Most ULIP Products in the market actually offer Insurance Coverage and suggest a “Sum Assured” when the investment starts. This Sum Assured is paid out in the event of the unfortunate death of the policy holder.

The absence of such an option could be a Big Minus Point for this product.

Of course, to be clear, this isn’t an Insurance Product. Rather, this is more an Investment Product aimed at building a Nest Egg by means of regular investments at low cost. Providing Insurance Coverage basically means the Insurance Company bears some risk and the fees are passed on to the customers. Considering the fact that the customer isn’t being charged hefty fees just to provide Insurance Coverage, this wouldn’t be considered such a Big Minus Point.

Still, a Minus Point is a Minus Point…

Reason 3: Limited Withdrawal Options @ Maturity

Per the policy features, at maturity there are only three proper options – A customer withdraws up to 1/3rd of the maturity proceeds and buys an Annuity product for the remaining or buys an Annuity product for the entire Amount or buy a Single Premium Deferred Pension Plan.

This basically means, if for some unforeseen circumstances, I need the money when I retire, I cannot get my hands on my money and have to settle for a Monthly Pension through my Annuity or the Deferred Pension Plan.

Yes, the purpose of this plan is to provide a regular pension post retirement but, I would’ve preferred to have an option wherein as a customer, I have the option to withdraw my full corpus even if it means I pay a small fee.

So, this is one more Big Minus Point on this product.

Note: At the time of maturity, customers who are below 55 years of age can actually defer the maturity date and extend the product for a few more years. This option hasn’t been considered as a withdrawal option for this point because that is basically just an extension of the policy tenure and after the extended tenure, the withdrawal options are pretty much the same as they were before the extension.

Reason 4: Limited Annuity/Pension Options

Another important point about access to our investment at the end of the policy term or at Surrender is the fact that, the customer has No Choice but to Purchase the Annuity Product or Single Premium Pension Plan from HDFC Life. Even if other Insurance Co.’s are offering better Products, the Customer would be restricted to buying them from HDFC Life and they have No Other Choice. This could be a big drawback for a customer because, HDFC Life at its discretion could choose to reduce the yield of its Annuity or Pension Products and the customers whose policies are maturing that year would have to live it with…

So, this too is a Big Minus Point on this product.

My Review Score

If I were to Review this Product on various aspects, the scores would be as follows

6.75 out of 10 isn’t a bad score considering the fact that most ULIP Products available on the market may not even cross the 5 out of 10 if we evaluate them on these aspects. So, all in all, I would say this is good product…

Who is this Product For?

This product would be a Good Choice for you if you feel more than two of the points below are true:

1. If You Do Not have a formal Pension System that will fund your Retirement Years

2. If You Do Not wish to withdraw the Entire Corpus @ Maturity

3. If You Intend to stay Invested in the Long Run and will continue to make Premium Payments as agreed in the policy document

4. If You Intend to Sign-Up for a Term Insurance Product that will provide the Requisite Insurance Coverage for your Family

5. If You are OK to purchase the Annuity product from HDFC Life at Maturity

Who is this Product Not For?

This product would not be a Good Choice for you if you feel one or more of the points below are true:

1. If You have a Formal Pension System that will fund your Retirement Years (Ex: Company Covered Pension System)

2. If You feel Withdrawal of Maturity Proceeds is your preferred Choice

3. If You feel you Need more Investment Choices and the Ability to choose how much % of your investment each year will get invested in the Equity Markets

4. If You Feel you can invest your Maturity Proceeds into different products and can Generate a higher income than Annuity Products

Some Last Words:

A huge chunk of the working class population of our country still Do Not have access to formal Pension options for their golden years plus, most of us may not have the time or the know-how to manage our investments by ourselves. This product would be a good low-cost option for anyone who wants to generate regular income during retirement.

Happy Retirement!!!

This Blog Post was Sponsored by 

Disclaimer: The purpose of this article is not an offer to sell this product. All Stock Market Related Investment Products come with Risks and so does this product. If you purchase this product, you are hereby agreeing to bear this investment risk. Also, please read the product offer document carefully before investing. The Author or the Blog will not be Liable for any losses that may arise due to your investment decision.

© 2015 by www.anandvijayakumar.blogspot.com. All rights reserved. No part of this article or its contents may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the Author.

HDFC Life Click 2 Retire ULIP Pension Plan – The Details

With a Market flooded with a plethora of ULIP products that are being sold indiscriminately by Insurance Agents and Financial Advisors just to pocket their share of the sales commissions, finding the right product is always tricky. Over the past 7+ years of this blogs existence, numerous investment products have been analysed and reviewed. In response to one of my earlier articles reviewing a ULIP product, I have received multiple queries/requests from readers about different ULIP products that they are considering for investment. One of these products was mentioned quite frequently and hence I have been researching about the product over the past few days.

The products name is HDFC Life – Click 2 Retire Plan. The purpose of this article is to find out details about this product. 

Before we Begin: This article is just an illustration of all the features of this product. It is not a Review. I will be posting my review of this product shortly :)

What is HDFC Life Click 2 Retire Plan?

HDFC Life Click 2 Retire is a Unit Linked Insurance Plan that is aimed at helping individuals accumulate a corpus for their Retirement Life that would guarantee a Steady Pension for their golden years.  As an investor, we choose the Policy Term, Premium Amount and the Premium Payment Duration + Frequency.

Your premiums will be used to build up a nest egg that will be used to purchase an “Annuity” product that would help you earn a Regular Pension post Retirement.

In the following sections, you will learn everything you need to know about this product that would help you decide if this is a worthy investment.

Key Features of the Click 2 Retire Plan

The following are some of the key features of the HDFC Click 2 Retire Pension Plan:

1. It is an Online Pension Plan. Individuals can just visit the website and sign-up online without having to fill-up length forms and paperwork. Of course, if you want, you can also visit HDFC Bank branches where their staff would be more than happy to help you sign-up for the product.  
2. It is one of the few products in the market that has 0 Premium Allocation Charges (Premium Allocation Charge is one of the main areas where Insurance houses charge a hefty % of the first few years premiums and pay a big chunk of it to the agent selling the product.)
3. It is one of the few products in the market that has a low Maturity/Vesting age of 45 years
4. It is one of the few products in the market that offers “Assured” Vesting Benefits (The Guaranteed or Assured amount you get at maturity depends on the policy duration, how long you paid premiums etc.)
5. The product offers two versions – a Single Pay option (where you invest one time at the beginning and withdraw at maturity) as well as a Regular Pay option (Where you invest regularly for a few years and then withdraw at maturity)
6. The Product offers Nomination Facility wherein the Policy holder can nominate one or more people who will receive the Money in case of their Demise. 
7. All Premiums Paid for this policy are eligible for Tax Benefits under Section 80CCC
8. If you are not satisfied with the product after purchase, you are eligible for a 30 day Free-Look period within which you can actually cancel your policy. In such a case, your current fund value minus the charges corresponding to the risk coverage you enjoyed will be paid out. 

Who can Buy this Product?

This product can be purchased by anyone. There are no limitations on who can purchase this product. The only restriction on this product is based on the individuals age.

• Minimum Age at the time of Policy Purchase – 18 years
• Maximum Age at the time of Policy Purchase – 65 years
• Minimum Vesting/Maturity Age – 45 years
• Maximum Vesting/Maturity Age – 75 years

Note: All Ages mentioned above are based on the individuals age as of the last birthday

What are the Different Premium Payment and Policy Term Options Available?

The HDFC Life Click 2 Pay product offers multiple Premium Payment as well as Policy Term options.

Premium Payment Term – Refers to the duration for which the individual will pay the premiums for the policy.

Policy Term – Refers to the duration (in years) that the Policy will be “Active” before you can withdraw the maturity proceeds. The Policy Term varies slightly based on the premium payment term that the individual chooses.

Are there any Minimum or Maximum Amounts for the Premium?

Actually, there is no Maximum Amount. You can sign-up for as much amount as you want. From a minimum amount stand-point, there are a few limitations.

-    

     The Minimum Amount for a Single Premium plan is Rs. 50,000/-

-  

     The Minimum Amount for Regular Premium Payment Plans depends on the frequency of payment

o   Monthly: Rs. 2,000/-

o   Quarterly: Rs. 6,000/-

o   Half Yearly: Rs. 12,000/-

o   Yearly: Rs. 24,000/-

Note: During the course of the policy, the policy holder cannot change the policy term or the premium payment term or the yearly premium amount. They can however choose between the monthly or quarterly or half yearly or annual mode of payment of the premium.

How Would our Investments Grow?

As a fund that actually Guarantees 101% or more of the Premiums we would’ve paid during the policy duration, how our money gets invested is actually determined by HDFC Life.

To start off – There are 3 potential Fund Choices under which the premiums will be invested. They are:

The Premiums Collected from Policyholders will primarily be invested across the Equity Plus Fund and the Income Fund. During the initial stages of the policy, a higher % (between 30 to 80% depending on the policy tenure) of your investment would go into the Equity fund. Every year, the % allocated towards the Income Fund increases while the allocation towards the Equity fund Decreases.

As your policy approaches the maturity date, the switch towards the Income Fund would be much higher in order to help preserve the Capital that has been Accumulated so far. Refer to the table below for how much % of your premiums get invested into Equities every year. The first column refers to the policy year and the other columns refer to your policy’s Duration or Term.

An Important point to note here is that, only the corpus arising out of policies that have been deferred their vesting date by policyholders are invested in the Conservative Fund.

What are the Benefits of Signing up for this Policy?

There are two Key Benefits of this Click 2 Retire Policy.

Benefit 1: Maturity or Vesting Benefit

As with any investment, the primary concern as an investor is the amount we would get at Maturity – isn’t it?

At the end of the policy term that you chose at inception, you can receive your Vesting Benefit or Maturity Proceeds as it is more colloquially called. The Vesting Benefit you receive will be the “Higher” of the following:

1.      The Fund Value (or)

2.      Assured Vesting Benefit

Fund Value is Straight forward – right? Every year as you make premium payments, the Insurance company would credit a certain number of units based on the prevailing NAV at that time. At Maturity, all these units multiplied by the current NAV would signify your “Fund Value”

Assured Vesting Benefit is slightly more complicated. This Assured Vesting Benefit basically is the “Minimum Guaranteed Sum Assured” that would be paid out to the policy holder – just like traditional Endowment policies. It can be calculated using a formula

Minimum Sum Assured = Total Premiums Paid * (101% + (1% * (Policy Term – Premium Paying term)))

So, if you chose a 20 year policy term with a 15 year premium paying term, the formula works out as follows:

Minimum Sum Assured = Total Premiums Paid * (101% + (1% * (20 – 15)))

Minimum Sum Assured = 106% of your Premiums Paid

Lets say, total premiums you paid over 15 years was 15 lakhs, at the end of 20 years you will get  15,90,000/- as the bare minimum amount. If the current Fund Value of your Units is higher than this 15.9 lakhs, of course the Insurance Company is going to give you that amount @ Maturity.

Note: The Assured Vesting Benefit Ranges from 101% to 135% of the Premiums Paid depending on the policy term and premium paying term that you choose.

Benefit 2: Death Benefit

In the event of the unfortunate death of the policy holder, the nominee would be receive the higher of the following:

-        The Fund Value (or)

-        105% of the Premiums Paid till date

The nominee would be given an option to either withdraw this amount in a lumpsum or purchase an Annuity product that would guarantee regular monthly pension payments.

An important point to note here is that, upon payment of this benefit, the policy would be terminated and no further benefits are applicable.

How to Utilize the Maturity Proceeds

At the beginning of the article I had mentioned that the purpose of this plan is to help build a Nest Egg that guarantees a Steady Pension Post Retirement. Did you note that point?

This Click 2 Retire is not a traditional ULIP product where you can withdraw the entire corpus as a lump-sum. The primary purpose of this product, as mentioned earlier, is to help you save up a Nest Egg that would guarantee a Steady Pension after Retirement.

As per the current regulations, below is how you could utilize your Maturity Amount:

1. Take upto 1/3rd of the Maturity Proceeds as a one-time “Tax Free” lump sum cash withdrawal. The remaining amount must be converted into an “Annuity” product that would make the monthly pension payments (or)

2. You could use the entire Maturity Proceeds to purchase an “Annuity” product to receive monthly Pension payments (or)

3. You can use the entire Maturity Proceeds to purchase a Single Premium Deferred Pension Plan

An important catch here is that, in either of these 3 options, you can only purchase the Annuity/Pension products from HDFC Life. Your choices will be limited to whatever Annuity/Pension plans they have available for purchase at the time when your policy Matures.

Deferment of Vesting Date

Lets say your policy term is 20 years and you are only 50 years at that time. As you still have a few years until retirement, you don’t really need the Pension right away. In this case, you can actually inform HDFC Life before the maturity/vesting date to actually Defer the date from which you will start receiving your pension. When you do this Deferment, the Assured Vesting Benefit and Death Benefit that we covered earlier will continue to Apply. However, the Assured Vesting Benefit would still be based on the original policy term that was chosen at the time of inception.

As a policy holder, you can Defer your Vesting Date, as many times as you want until you reach the age of 55 subject to a maximum Vesting age of 75. This means, if you are over 55 you cannot Defer your Vesting age. Similarly, when you do the Deferment, your vesting age cannot be more than 75.

An important point to note here is that, when you Defer your Vesting Date, your funds will be moved to the Pension Conservative Fund to minimize capital erosion.

What are the Fees and Charges associated with this Click 2 Retire Pension Plan?

Just like any other ULIP Plan, there are multiple fees and charges that we need to take into account for this plan. All the fees below were picked up from the product brochure. An important point to note here is that, HDFC Life may alter these charges if IRDA approves a change to the fee-structure of the product. However, if there are any changes, the policy holders will be notified prior to the change.

Below are the Fees & Charges that HDFC Life charges on this Click 2 Retire Plan

An important point to note here that the Statutory Service Tax and Educational Cess are also applicable for this product.

What Happens if I am Unable to Pay my Premiums?

There may be situations wherein policyholders are unable to make timely premium payments. To ensure the risk coverage isn’t lost right away, most Insurance companies offer Grace Period within which customers can pay their premiums and still retain their policy coverage. In case of this policy, the Grace Period is 15 days for Monthly premium payment mode and 30 days for Quarterly, Half-Yearly and Annual payment modes.

In case you fail to make payment within this Grace Period, your policy will be marked as “Discontinued” and your Risk Coverage would cease to be Applicable and your Fund Value will get moved into the “Discontinued Policy Fund”. This fund guarantees a minimum interest of 4% and your money will be invested in Money Market Securities (up to 40%) and the rest on  Government Securities. This fund also attracts a 0.5% p.a fund management charge.

If your policy gets Discontinued, you have two options:

1.      Revive the policy within 2 years from the date your policy was marked as “Discontinued” or

2.      Withdraw/Surrender your Policy (Refer to the next section)

Revival of Discontinued Policies

If a customer whose policy was discontinued wishes to continue his investment, they can actually pay all of the pending premiums that they should’ve paid up until that point and request HDFC Life to revive their policy. A point to note here is that, this revival option is only available within the first 2 years of the policy being marked as “Discontinued”. After 2 years, you will not be able to Revive your Discontinued policy.

In cases where the customer has failed to revive the policy, after the lock-in Period of  5 years, the Fund Value will be available for withdrawal the customer. Similarly, in case of the Death of the holder of the Discontinued Policy, the Fund Value of the Policy will be paid out to the Nomine. No additional benefits would be payable since the policy was not “Active” to receive Death Benefits.

Can I Surrender my Policy Ahead of Maturity?

Although this is something I DO NOT Recommend on any Long-term Investment, having options to be able to surrender a policy ahead of time is a good point to consider while choosing an investment.

This product allows two options for Surrender and withdraw the money. An important point to note here is that - Once the amount is withdrawn, the policy ceases and no benefits are payable.

Surrender Before Completing 5 years

If a Policy holder wishes to surrender his/her policy during the first 5 years, the Fund Value (as on the date of Surrender) minus the Discontinued Charges applicable at that time will be moved to the “Discontinued Fund”. The fund value corresponding to the Fund will be available for Withdrawal after the initial lock-in period of 5 years. In case the policy holder dies after surrendering the policy but before the completion of the lock-in period, the current value of the fund would be paid out to the Nominee/Survivor.

Surrender After Completing 5 years

If a policy holder wishes to surrender his/her policy after finishing the first 5 years, the prevailing Fund Value will be available for Withdrawal.

Utilization of Policy Proceeds in case of Surrendered or Discontinued Policies

Though the Policy says your Fund is available for withdrawal, you cannot really get all your money. You can utilize this Withdrawal Proceeds as following: (Just like @ Maturity) 

1.      Take upto 1/3rd of the Maturity Proceeds as a one-time “Tax Free” lump sum cash withdrawal. The remaining amount must be converted into an “Annuity” product that would make the monthly pension payments (or)

2.      You could use the entire Maturity Proceeds to purchase an “Annuity” product to receive monthly Pension payments (or)

3.      You can use the entire Maturity Proceeds to purchase a Single Premium Deferred Pension Plan 

Is this HDFC Life Click 2 Retire Policy a Worthy Investment? 

Wait for a few days to find out... That will be the next article...

Disclaimer: This article is not an investment recommendation of the product. All details of the product explained here were taken from HDFC Life Website + Click 2 Retire Product Brochure. Please read the product offer document carefully before investing.