I was introduced to the Aviva Saveguard ULIP in 2006 by a wealth management consultant. I invested in it without proper research because I was promised good returns. I found out the details of the huge charges only after investing in the policy and was forced to continue with it because of the high surrender charges.
Now, even after 8 years of paying the premium, the corpus hasn't reached at par. I wonder how the regulators allow such schemes to be run as they gobble up the money of small investors who lose their hard-earned savings. I request you to suggest a way out of this mess.
- Ramesh Reddy
Aviva Saveguard is a non-participating unit linked endowment plan. It is an old policy i.e., issued before September 2010. You are correct in saying that it charges huge sums every year as expenses.
Premium allocation charge for this plan is between 4 to 6 percent each year, fund management charge lies in range of 0.75% to 1.75% depending on the fund you have invested. Another charge is Policy Administration charge which is charged monthly at different rates depending on the policy term and annual premium and the last is mortality charge. High charges are the cause of lower returns under these plans.
Traditional insurance products are never great at earning returns because they deploy your money only into safe debt instruments. The high expenses of these plans further eat away your returns.
You should also note that this plan provides life cover of just five times the annual premium which may not be sufficient for your family in your absence. Go for a pure term life insurance where you can get a much larger cover at lower premiums. Calculate how much sum would be sufficient for your family if something happens to you. For investments, select well rated balanced mutual funds. Funds such as HDFC Prudence, HDFC Balanced, Tata Balanced and Birla Sun Life 95 should be good options to invest in via systematic investment plan.
You may surrender this policy. Surrender charges if you have paid premiums for more than seven years but upto eight years is 1% of the face value, whereas, if you have paid premium for more than eight years, there is no charge on surrender. Surrender and limit your losses.