Session 4

Module II

LIFE INSURANCE PRODUCTS

Unit Linked Plans
Types of Life Insurance Products

 Conventional Plans
 Unit Linked Plans
 Annuities & Pensions
 Besides there are Group Insurance
Plans & other special plans
 Unit Linked Plans

Combination of Life insurance

protection + Investment

 Offers the benefits of Life Insurance

 Provides option to participate in the
growth of capital market
 ULIPs : An endeavor of IRDA to
enable the buyer to make the most
informed decision possible when
planning for financial security
 ULIP - abbreviation for Unit Linked
Insurance Policy

 The dynamics of the capital market

have a direct bearing on the
performance of the ULIPs.
 IN ULIPS THE INVESTMENT RISK IS
GENERALLY BORNE BY THE
INVESTOR.

 ULIPs contribute nearly 50% of the

premium for some insurers
 Out of the Premium, amounts are
adjusted towards

 Cost of Insurance (Death Cover)

 Adjustment towards charges
 Allocated Premium – Invested in a
fund chosen by the investor
 In ULIPs,

 Death Benefits – Fixed

 Maturity Benefits – Not Guaranteed

Maturity Benefits:
 Based on Market Conditions
 Fund in which premium has been
invested
 ULIPs provide flexibility to the Policy
Holders
 Option of switching
 Policy Holders can make lump sum
additional contribution at any time
 Top up – the expression used to refer to the
policyholder increasing the contribution for
investment. There could be a top up charge
As per IRDA guidelines;

 Top up is allowed only if the regular

premium is paid up to date
 Policyholders may not pay the
premium in a year, subject to certain
conditions
 If that happens, no new units will be
added to this funds
 Some units will be reduced to pay for
the annual charges for cover, for
administration, for fund management
etc.

 This is called Premium Holiday

Net Assets Value (NAV)
 Represents the net value of the fund

on a particular date
 Reflects the total value of the assets

of that fund, after some adjustments

for expenses
Surrender Value:
 Cash Value payable on voluntary
termination of the policy contract at
the desire of the policy holder, but
before the expiry term
 A policy can be surrendered, provided
it is kept in force for atleast 3 years
 Mode of calculating surrender value
differs from company to company
Lock in Period:

 Period during which withdrawals are

not allowed
 It is 3 years, according to IRDA
Guidelines
 Surrender value will be allowed only
after 3 years
Differences between ULIPs &
Traditional Plans
ULIPS
The Premiums, in excess of
Risk Cover, is invested as
desired by the policy holder
Investment returns vary
based on the market
movements.
Investment Risk – borne by
the policy holder
TRADITIONAL PLANS
Investment - Insurer’s
Discretion
Guaranteed benefits –
Insurer bears the investment
Risk
Non Guaranteed benefits like
bonuses – based on the
performance of insurers
ULIPS TRADITIONAL PLANS

Withdrawals are allowed Surrenders are allowed, but

Loss, if any, depends on NAV at a loss

No bonuses (there are few Bonuses are payable in

exceptions) participating policies

Benefits are variable Benefits are pre determined

Gains likely, depending on Gains unlikely, except
market movements through bonuses
Charges applicable in ULIPs
These charges are subject to various conditions
& vary between insurers

 Accident Benefit Charges : If the accident

rider is availed of
 Administration or Fixed charges: Fees for
the administration of the plan
 Flat Fee: charged every month, regardless of
the size of the premium
 Fund Administration Charges: Being a
percentage of the fund & deducted daily

 Fund Switching Charges : Levied when

there is a switch from one fund to another

 Insurance or Risk Cover Charges:

Premium for the death cover
 Service Tax

 Surrender Charges: May be charged for

partial or full encashing of units before a
certain period of time
Attractive Features of ULIPs
 Flexibility
 Flexibility to choose Sum Assured.
 Flexibility to choose premium
amount.
 Option to change level of Premium
even after the plan has started (Top
up facility).
 Flexibility to change asset allocation
by switching between funds.
 Transparency

 Changes in the plan & net amount

invested are known to the customer

 Convenience of tracking one’s

investment performance on a daily
basis.
 Liquidity

 Option to withdraw money after few

years

 Low minimum tenure

 Partial / Systematic withdrawal

allowed
 Fund Options

 A choice of funds