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unit linked insurance plan

unit linked insurance plan

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Sr.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Particulars Introduction Types Of Insurance LIC ULIP Buying ULIP--- An Important Note Types Of ULIP Plans How It Differ From Mutual Funds Systematic Planning Of ULIP 5 Points To Selecting A ULIP Case Study Is Investment In ULIP A Risky Option Important News Six Points To Note After Selecting A ULIPs Prominent Companies In ULIP Future Of ULIP Bibliography Page No. 1. 2. 4. 5. 20. 21. 23. 24. 30. 34. 40. 43. 44. 48. 49. 50.

“Unit Link Insurance Plan (ULIP)”


Introduction to Insurance
What is insurance – The business of insurance is related to the economic value of the assets. Every asset has a value. The asset would have been created through the efforts of the owner. Every asset is expected to last for a certain period of time during which it will perform. After that benefit will not be available. None of them will last forever. The owner of is aware of this and so he can manage the affairs and ensure by the end, the substitute is available. Thus he makes sure value or income is not lost. However the asset may get lost earlier. An accident or some unfortunate event may destroy it or make it non-functional. In that case the owner and those deriving benefits there from, would be deprived from the benefit and the planned substitute would not have been ready. This is an adverse or an unpleasant situation. Insurance is a mechanism to reduce such situation.

Brief History of Insurance
The business of insurance started with marine business. Traders used to gather at Lloyd` s coffee house in London agreed to share their losses to goods while being carried by ships. The losses used to occur by pirates who robbed on the high seas or because of spoiling the goods or sinking the ship. The first insurance policy was introduced in 1583 in England. In India the, insurance begin in 1870 with life insurance being transacted by English company, The European and the Albert. The first Indian
“Unit Link Insurance Plan (ULIP)”


insurance company was Bombay Mutual Assurance Society Ltd., formed in 1870. This was followed by Oriental Life Assurance Co. in 1874, The Bharat in 1896 and The Empire of India in 1897. Later the Hindustan cooperative was formed in Calcutta, the United India in madras, the Bombay life in Mumbai, the National in Calcutta, the New India in Mumbai, the Jupiter in Mumbai and Lakshmi in New Delhi. By the year 1956, when the life insurance was nationalized and the Life Insurance Corporation was formed.

Types Of Insurance
Insurance Are Of Various TypesSome of Them Are –

Business Insurance Dental Insurance Deposit Insurance Earthquake Insurance Flood Insurance General Insurance Group Insurance Health Insurance Home Insurance Insurance Protection Insurance
“Unit Link Insurance Plan (ULIP)”


10- Keyman Insurance
11- Life 12- Loan

4. 13- Marine

Insurance Insurance Insurance

14- Parametric 15- Perpetual 16- Pension 17- Pet

Term Assurance And Indemnity Insurance

Insurance Of Premium Life Insurance

18- Protection 19- Return

20- Reinsurance
21- Safe

Funded Health Care Life Insurance Insurance

22- Term

23- Terrorism 24- Title

Insurance Credit Insurance Insurance Life Insurance Insurance

25- Trade 26- Travel

27- Universal 28- Vehicle 29-

Vision Insurance Insurance Life Insurance Compensation Insurance

30- Wage

31- Whole

32- Workers

“Unit Link Insurance Plan (ULIP)”


Life insurance
As the business of ULIP is linked to life insurance I would like to brief about a bit of life insurance. A human being is an income generating asset. One` s manual labour, professional skills and business acumen are the assets. This asset can also be lost through early death, or through sickness or disabilities caused by accidents. Accidents may or may not happen. Death will happen but the timing is uncertain. If it happens at the time of one` s retirement, when it could be expected that the income of the person would normally cease, the person concerned could have made some other arrangements to meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, there can be losses to the person and their dependents. Insurance is the necessary tool to help those dependents. A person, who may have made arrangements for the needs, after his retirement would also need insurance. This is because the arrangements would have been made on the basis of some expectations like, likely to live for another 15 years, or that children will look after him. If any of the expectations do not become true, the original arrangement would become inadequate and there would be difficulties. Living too long can

“Unit Link Insurance Plan (ULIP)”

It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP came into play in the 1960s and is popular in many countries in the word. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).6. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. IRDA (Insurance regulatory and development authority). Both are the risks. financial needs. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. 1999 is an act governing life insurance and ULIP. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. ULIP ULIP stands for Unit Linked Insurance Plan. be as much a problem as dying too young. In today’s times. financial “Unit Link Insurance Plan (ULIP)” . which need to be safeguarded against. ULIP provides solutions for insurance planning.

If the inclination to invest in stock market still persists but are still skeptical. However. The best part of investing in stocks via ULIPs is that you can choose the funds suiting your risk profile. planning for children’s future and retirement planning. If you know that a particular fund is at its high and is performing well. A reason good enough to invest in Fixed Deposits (FD). lately banks have been offering an 8% interest rate per annum for investors. It provides cushion to those who are risk averse. When the stock markets are volatile and unpredictability becomes a hindrance to encourage further investment. provided the minimum tenure selected is five years. investment may seem customary. with the switch over option you can move to that fund. These are provided by the insurance companies or even banks. ULIPs offer insurance protection along with the option to invest in the stock market. The funds offered by ULIPs “Unit Link Insurance Plan (ULIP)” . it leaves the customers perplexed. 1961.7. What’s more? The investments in FDs qualify for tax benefits too under Section 80 C of the Income Tax Act. You can do that when the fund in which you have invested is performing poorly or you feel the returns are high in some other fund. To top it all if the debt market doesn’t attract you because of its low interest rate. try via Unit Linked Insurance Plan (ULIP) route.

However. In a ULIP. So that means.000 depending on the company you choose. For a similar example as above. give the investors an exposure to both high and low equity investments. your premium will remain fixed throughout the term of the policy. In a term policy. make your pick.000 as insurance premium. Simple Explanation Of ULIPs – Suppose that you buy a ULIP when you are 30 years old.000 to Rs 30. The “Unit Link Insurance Plan (ULIP)” . if you opt to invest in a mutual fund and buy a term policy. if you were to buy a term policy and a mutual fund.8. the amount of investment and cost of insurance will not change over a period of time. the insurance company will recover its costs of distribution and administration as well as margins. This vast difference in cost of insurance is mainly because of cost of distribution and administration as also the margins of the insurer. costs and margins are recovered commonly between the investment portion and the insurance portion. The sum assured is Rs 5 lakh and the term is 20 years. he would end up paying anywhere between Rs 40. The premium that you will pay over a period of 20 years will work out to around Rs 25.000 to Rs 50. Based on your risk profile. if the 30 year old were to take a term insurance policy for Rs 5 lakh.

So suppose you have a risk cover of Rs 5 lakh and would like to increase it to Rs 6 lakh.9. Says Puneet Nanda of ICICI Pru. “Unit Link Insurance Plan (ULIP)” . This would mean paying administration charges all over again. while maintaining the same premium. the amount invested would be less.” If you have a term policy and would like to increase your life cover. mutual fund would again recover the same costs from your investment portion. This is done by simply reducing your investment allocation. your fund mix. You can vary your mix between protection and savings or within savings. Flexibility A ULIP will give you flexibility of increasing your life cover. your only option would be to buy another term policy. The only difference would be that the amount deducted towards the risk cover would be more and therefore. Life Insurance. you can still continue to pay the same amount of premium. “The reason why ULIPs have become popular is because they offer huge amount of flexibility during the course of the policy.

Expenses If you were to look at the expenses of a ULIP as compared with the expenses of a mutual fund. So if you are looking for a long-term investment avenue with an insurance cover that goes with it. Look at a mutual fund if you are looking at a time horizon of 3-5 years. The cost of insurance will be taken out of your existing investment to keep the policy going. With a ULIP you don’t have fear that your policy will lapse if you were unable to pay your premium. then ULIP is the product for you and if you are looking at a product that helps you focus purely on investment and returns over a medium term. That is why it does not make sense to invest in a ULIP if you are looking at a short term. Experts say “Unit Link Insurance Plan (ULIP)” . There’s more to the flexibility. In a ULIP charges are front loaded. it will lapse. then go for a mutual fund. charges of a ULIP even out and compare well with a mutual fund. In the long term. But if you fail to pay premium on your term policy.10. most of the charges are recovered within the first few years. which means. there is a difference.

 The client’s age is 38 years and he wants a life insurance cover for Rs In this article we discuss the query and our solution for the same. we get queries from our clients on how to go about managing their finances.  He has been recommended a ULIP (unit linked insurance plan) by his insurance agent with a sum assured of Rs 5. The client has also been advised by his agent to consider investing his premiums in the ‘Aggressive’ (as has been defined by the insurance “Unit Link Insurance Plan (ULIP)” .  The premium paying term however is only ten years and the actual premium he will have to pay per annum is approximately Rs 894. the two products are different and ideally you should have both in your portfolio. He has an above-average risk appetite.000.11. As financial planners. Let us look at the information available.000 till he reaches the age of 84 years. This works out to the client being insured for a tenure of 46 years (i. 84 .000. We were recently faced with a rather interesting query related to ULIPs.e.

000. We took into consideration the client’s current financial portfolio.000). Bearing this in mind. our view was he did not need to have another debt-heavy (ULIP “Unit Link Insurance Plan (ULIP)” . He had a sizable portion of his portfolio invested in fixed income instruments like bonds and fixed deposits. which allows upto 35% exposure to equities. now let’s shift our focus to his investments. he would need to buy a term plan for more than the sum assured recommended on the ULIP (i. The investment component Having taken care of the client’s insurance needs.e.000 (as per the ULIP) for a term plan. Given below is our solution based on the client’s needs. And considering his annual income. The insurance component To begin with.000. the annual premium he would have to shell out would be approximately Rs 30. company in question) option. Even if we were to consider his sum assured to be Rs 5. we knew from our interaction with the client and based on the Human Life Value Calculations that he is underinsured.12. An immediate action point for him would be to buy a term plan. We have always maintained that one’s interests would be best served if he keeps his life insurance and investment needs distinct. Rs. 5.000 per annum for a 30-Yr period.

 ULIP tend to be expensive propositions (vis-a-vis mutual funds) during the initial years. a 100% equity mutual fund is better geared to outperform a ULIP portfolio with a 65% debt component. This could be achieved by investing in equity-oriented mutual funds. the latter would still surface as the better option. And given that the client’s investment horizon is of over 30 years. equities give a higher return vis-à-vis fixed income instruments like bonds and government securities.13. over a 30-Yr period. with a 65% debt component) product in his portfolio. this is an ideal time frame to reap the rewards of investing in equities. Instead what his portfolio needed was a higher equity component. the expenses balance out and ULIPs work out to be cheaper as compared to mutual funds. this would not only ‘balance’ his portfolio but also ensure that the portfolio reflects his true risk profile. However. It was also relevant that the client invest in equities since he was considering his investments from a long-term (over 30 years) horizon. “Unit Link Insurance Plan (ULIP)” . However. Mutual funds can offer several benefits:  Several studies have shown that over the long term. Also. over longer time horizons. even if the lower expenses of a ULIP vis-à-vis that of a mutual fund scheme were to be considered.

the Section 80C tax benefits were being taken care of by way of Employees’ Provident Fund (EPF) as well the recommended term plan. given the client’s annual income.14. However.  You can make adjustments to your mutual fund portfolio. The Tax Aspect we also had to contend with Section 80C tax benefits. Personalfn’s recommended equity-oriented funds have a proven track record extending over several years and across market cycles.  Several mutual funds also have a track record to boast of. in fact most ULIPs are yet to experience a bear phase. you can redeem your investment in a particular mutual fund and invest in another one. Such adjustments are not entirely feasible in a ULIP. On the other hand. If you believe you have made a wrong investment decision. “Unit Link Insurance Plan (ULIP)” . ULIPs do not have much of a track record to show for. The investor will reap the reward of diversifying across several fund management styles. The client therefore can invest in regular diversified mutual funds and not necessarily in tax saving funds (ELSS). the client would be committing his entire corpus to just one style of investment.  Investing in a mutual fund portfolio will offer the benefit of diversification to the client. This can prove to be quite risky over the long term. by investing all his money in just one ULIP.

balanced funds and debt funds to name a few. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. Generally speaking. term plans combined with mutual funds have the potential to add considerable value to an investor’s portfolio. Despite the seemingly comparable structures there are various factors wherein the two differ. In this article we evaluate the two avenues on certain common parameters and find out how they measure up. ULIPs can be termed as mutual fund schemes with an insurance component. they can consider mutual funds.15. investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. i. Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. “Unit Link Insurance Plan (ULIP)” . As is the cases with mutual funds. diversified equity funds. In our view individuals should first ensure that they are adequately covered by opting for a term plan.e. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain. Then they can either opt for ULIPs for the investment component or as we have shown. As can be seen.

1. determining the premium paid is often the starting point for the investment activity. half-yearly. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested. This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts. quarterly or monthly basis. making premium payments on an annual. conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). In ULIPs. i.16. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. “Unit Link Insurance Plan (ULIP)” .e. The minimum investment amounts are laid out by the fund house. Mode of investment/ investment amounts Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons.

expenses charged for various activities like fund management. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator. For example equity-oriented funds can charge their investors a maximum of 2. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings.17.e. administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. Similarly funds also charge their investors entry and exit loads (in most cases. Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. i. the Insurance Regulatory and Development Authority. sales and marketing. Expenses In mutual fund investments. 2. either is applicable). This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller “Unit Link Insurance Plan (ULIP)” . any expense above the prescribed limit is borne by the fund house and not the investors.5% per annum on a recurring basis for all their expenses.

corpus being accumulated. albeit most fund houses do so on a monthly basis. the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. regular portfolio “Unit Link Insurance Plan (ULIP)” . Some insurance companies do declare their portfolios on a monthly/quarterly basis. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory. Portfolio Disclosure Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses". However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement. 3. During our interactions with leading insurers we came across divergent views on this issue.18. There is lack of consensus on whether ULIPs are required to disclose their portfolios. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house. a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). he could have to bear an exit load and/or entry load. Flexibility in Altering Asset Solution As was stated earlier. 4. This can prove to be very useful for investors. For example plans that invest their entire corpus in equities (diversified equity funds). Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually.19. a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. offerings in both the mutual funds segment and ULIPs segment are largely comparable. disclosures on the other hand can enable investors to make timely investment decisions. for example in a bull market when the ULIP investor's equity component has appreciated. he “Unit Link Insurance Plan (ULIP)” .

while a short-term capital gain is taxed at the investor's marginal tax rate. Similarly. In case of equity-oriented funds (for example diversified equity funds. debt-oriented funds attract a long-term capital gains tax @ 10%. On the other hand in the mutual funds domain. As always. can book profits by simply transferring the requisite amount to a debtoriented plan.20. only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. if the investments are held for a period over 12 months. irrespective of the nature of the plan chosen by the investor. the gains are tax free. This holds well. conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. Tax Benefits ULIP investments qualify for deductions under Section 80C of the Income Tax Act. 5. it is vital “Unit Link Insurance Plan (ULIP)” . balanced funds). Maturity proceeds from ULIPs are tax free. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer.

which invest predominantly in specified debt instruments like bonds and government securities.21. for investors to be aware of the nuances in both offerings and make informed decisions. I outline 5 parameters that ULIPs need to be evaluated upon before individuals zero-in on a unit-linked product. This is unlike saving-based plans like endowment plans. ULIPs have an investment mandate. which allows them to 'shift' assets freely between equities and debt. Therefore. ULIPs differ significantly from traditional endowment plans in the way they invest their monies. it becomes important for individuals to understand what to look for in a ULIP before finalising one. The amount of money invested in equity has the potential to make a significant difference to the returns that the plan can generate over the long run. most individuals opting for life insurance now go in for ULIPs as opposed to term plans or endowment plans. Buying ULIPs? – An important noteUnit linked insurance plans have caught the fancy of individuals over the past few years. In fact. “Unit Link Insurance Plan (ULIP)” .

22. Types of ULIP Plans – (Features) ULIP is a contractual savings-cum-insurance plan that offers the following features: • • • • • • • • • • • • • • • • • High returns Maturity bonus Life insurance cover Safety of capital Life protection Investment and Savings Flexibility Adjustable Life Cover Investment Options Transparency Options to take additional cover against Death due to accident Disability Critical Illness Surgeries Liquidity Tax planning “Unit Link Insurance Plan (ULIP)” .

Generally speaking. Who can invest in ULIPs? It is open to any resident of India who is above 18 years of age. one common doubt in most people’s mind is why they cannot buy a mutual fund and top it up with a term insurance policy instead of buying a ULIP? There are a number of matters to consider here – the cost of life insurance. ULIPs: How it differs from mutual funds Even as ULIPs are selling like hot cakes. respectively. the investment horizon and so on.e. balanced funds and debt funds to name a few. the reason for investment.23. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. “Unit Link Insurance Plan (ULIP)” . i. diversified equity funds. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain. Individuals less than 55 years and 6 months of age can join the plan for 10 years and those less than 50 years and 6 months for 15 years contributing 1/10th and 1/15th of the target amount every year. ULIPs can be termed as mutual fund schemes with an insurance component.

While some insurers claim that disclosing portfolios on a “Unit Link Insurance Plan (ULIP)” . expenses determined by the insurance Expenses Portfolio disclosure Modifying asset allocation company Not mandatory* Generally permitted for free or at a nominal cost Section 80C benefits are available on all Tax benefits ULIP investments Mutual funds Minimum investment amounts are determined by the fund house. Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory Entry/exit loads have to be borne by the investor Section 80C benefits are available only on investments in taxsaving funds * There is lack of consensus on whether ULIPs are required to disclose their portfolios.24. But still here are some basic differences – ULIPs Investment amountsDetermined by the investor and can be modified as well. No upper limits.

25. On the one hand. How ULIPs can make you rich!(systematic planning of ULIPs). “Unit Link Insurance Plan (ULIP)” . they have become a subject of much discussion and debate.by Personal finance. quarterly basis is mandatory. As ULIPs made their presence felt. insurers were more open to discussing the costs and how they evened out over the long term. they were a trifle too complicated for individuals not yet exposed to the stock markets. others state that there is no legal obligation to do so. on the other hand. Ever since unit-linked insurance plans (ULIPs) made their debut. they were much-maligned because of the 'unusually high' costs. This and the flexibility that ULIPs offer became important points that made individuals consider adding them to their portfolios.

If term insurance is only going to take care of the 'risk' element. we have always been votaries of term insurance -. Term insurance is also insurance in its 'purest' form. probably married and even have kids. If you are between 25 and 35 years of age You are young. who is going to take care of the 'savings' part.the cheapest way to get a life cover for you. If you are the sole breadwinner in the family. Today. then you have quite a few responsibilities to fulfill right from planning for your child's education/marriage to planning for your own retirement to providing for the family in your absence. which ensures your premiums are very low. At Personal fn. “Unit Link Insurance Plan (ULIP)” . Here we outline exactly how ULIPs can help you fulfill that responsibility.26. more individuals are open to using the ULIP-way to create wealth over the long term. The last responsibility is the most critical and ironically it is the easiest and cheapest one of the lot to fulfill. There is no better product to provide for your family in case of an eventuality and all individuals must consider taking a term plan. But it still leaves you with a problem. Term insurance of course takes a huge burden off your chest as also your wallet. in other words there is no savings element in it.

27. a ULIP can help you meet a lot of your financial objectives. let alone provide for a medical or MBA degree. they don't have traditional endowment. there are some life insurance companies that only have ULIP products. As a matter of fact. If you are looking to set aside some money for your child's education. So you have endowment ULIP. planning for retirement and other investment-related objectives? ULIPs can do all this and more because they come with a lot of variety. it should be enough to cover the cost of education. Of course. except for term insurance (because it does not make sense). child plan ULIPs and pension ULIPs. The return you earn on a child plan should not just counter inflation. So how can ULIPs help you save for child's education/marriage. that is not to say that ULIPs do not have an insurance element. the 5%-6% return on an endowment plan may not even take care of inflation. just about every life insurance product has a ULIP option. pension and child plans at all! What that tells you is that if you are willing to take on some risk. Consider this. This is where ULIPs come in. they do. but it is limited largely to the earlier years and after a point they don the mantle of an investment product. “Unit Link Insurance Plan (ULIP)” .

Although you can take a single endowment ULIP to achieve both objectives. And the way cost of education is spiralling. One way to handle this multi-faceted objective is to take a ULIP money-back plan. Your most pressing financial objectives are providing for your child's future and your own retirement. “Unit Link Insurance Plan (ULIP)” . Opt for a ULIP child plan to provide for your child's higher education. This way you get monies at regular intervals to address multiple needs. As we mentioned before. there are various options within a ULIP with the equity component varying right from 0% to 100%. we think it is more prudent to make a demarcation between the needs and take separate ULIPs dedicated to each objective. The other important plan that individuals must consider taking earlier on their lives is a pension plan. your insurance plan must work very hard. Building a corpus to face the rigours of retirement should be given the priority it deserves. ULIPs are flexible. Given their equity component. Let us understand how ULIPs can be tailor-made to serve your financial planning needs. marriage and seed capital for business to name a few needs.28. ULIPs can help you achieve both. You are in the 25-35 years age bracket. This ensures that you are able to select an option that best suits your risk profile. ULIPs are ideally placed to fulfill this role.

some of your existing ULIPs are probably nearing maturity. now is the time. Again. The advantage of taking a term plan at a slightly advanced age is that you have a better idea of how your lifestyle is likely to pan out going forward. it is likely to mature in this age bracket to coincide with the need (higher education/marriage) you had in mind at the time of taking the ULIP. “Unit Link Insurance Plan (ULIP)” . If you haven't insured yourself as yet. if you had taken a ULIP child plan earlier on. Likewise a ULIP endowment plan can help you meet investment objectives like buying property or setting up a business for instance.29. For instance. term plans remain your cheapest option no matter when you take one. However. go for a term insurance plan. If you are between 35 and 45 years of age By the time you reach the 35-45 age bracket. if you married late or did not begin planning your finances at an early stage in your life. Here is where a ULIP pension plan can add value to your retirement portfolio. a long-term investment objective like retirement planning could do with an equity 'push'. In terms of costs.

unlike endowment. ULIPs because of the way they are structured. which gets really expensive at an advanced age. depending on your requirements. Remember. However. “Unit Link Insurance Plan (ULIP)” . you still need to review your insurance cover taking into consideration the changes in your lifestyle. By this time. immediate or deferred. your ULIP pension plan will have matured. If you are over 45 years of age In this age bracket. it is likely that you are insured. You can opt for some of the ULIPs we mentioned for individuals in the 25-35 years age bracket depending on your needs. income. Beef up your insurance cover through a term plan. do not turn out that expensive. needs and financial commitments.30. You can then opt for an annuity.

After having interacted with a number of investors who were very disillusioned with their ULIPs investments. Our experience suggests that investors on most occasions fail to realise what they are getting into and unscrupulous agents should get a lot of 'credit' for the same. the various options available and understand their working. I present a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right ULIP. Gather information on ULIPs.31. More importantly. Read ULIP-related information available on “Unit Link Insurance Plan (ULIP)” . often the disappointment stemmed from poor and inappropriate selection. This way you will be fully aware of what you are getting into and make an informed decision. ULIPs have far too many critics. Understand the Concept of ULIPs Do as much homework as possible before investing in an ULIP. 5 very important steps to selecting the right ULIP How to select the right ULIP For a product capable of adding significant value to investors' portfolios. 1. it will ensure that you are not faced with any unpleasant surprises at a later stage.

financial Web sites. 3. Your risk appetite should be the deciding criterion in choosing the plan. For example. As a result if you have a high risk appetite. then an aggressive investment option with a higher equity component is likely to be more suited. information on premium payments will help you get a better picture of the minimum outlay since ULIPs work on premium payments “Unit Link Insurance Plan (ULIP)” . premium payments and performance among others. Compare ULIP Products from Various Insurance Companies Compare products offered by various insurance companies on parameters like expenses. newspapers and sales literature circulated by insurance companies. Similarly your existing investment portfolio and the equity-debt allocation therein also need to be given due importance before selecting a plan. Opting for a plan that is lop-sided in favour of equities.32. Focus on Your Need and Risk Profile Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). 2. only with the objective of clocking attractive returns can and does spell disaster in most cases.

This option enables policyholders to increase the premium amounts. Enquire about the top-up facility offered by ULIPs i. change the asset allocation of your ULIP account) from one investment plan to another. Go for an Experienced Insurance Advisor Select an advisor who is not only conversant with the functioning of debt and equity markets. thereby providing presenting an opportunity to gainfully invest any surplus funds available. find out how the debt. Expenses are a significant factor in ULIPs. as opposed to sum assured in the case of conventional insurance products. Ask for references of clients he has serviced earlier and cross-check his service standards. Compare the ULIPs' performance i. Find out about the number of times you can make free switches (i. Some insurance companies offer multiple free switches every year while others do so only after the completion of a stipulated period. additional lump sum investments which can be made to enhance the policy's savings portion. hence an assessment on this parameter is warranted as well.33. “Unit Link Insurance Plan (ULIP)” .e. but also independent and unbiased.e. also study the portfolios of various plans.e. equity and balanced schemes are performing. 4.

“Unit Link Insurance Plan (ULIP)” . Does Your ULIP Offer A Minimum Guarantee? In a market-linked product. Insurance advice at all times must be unbiased and independent. His job should not be restricted to doing paper work like filling forms and delivering receipts.34. This step is very important as investors mainly go for minimum guarantee plans of any ULIPs. also your agent must be willing to inform you about the pros and cons of buying a particular plan. 5. Find out if the ULIP you are considering offers a minimum guarantee and what costs have to be borne for the same. put forth some product-related questions to test him and also ask him why the products from other insurers should not be considered. When your agent recommends a ULIP from a given company. protecting the investment's downside can be a huge advantage. instead he should keep track of your plan and offer you advice on a regular basis.

 The client is 55 years old 2. While ULIPs could be suitable to individuals based “Unit Link Insurance Plan (ULIP)” . A very famous case study on mis-selling of ULIPs.35.  She is not very literate in matters of investment and finance 6.  She will inherit a huge sum of money at the age of 60 years 5.e. Facts of the case: 1. there was no reason to recommend anything even remotely risky.000 pa premium ULIP by a private sector bank. has less cash) It is apparent from the client's age and investment profile that a Rs 500. so investing for a regular income was her top priority 3. Even though we have seen several cases of ULIPs (unit-linked insurance plans) being sold to the most improbable of investors. this case had us completely taken aback. One such case involved a 55-Yr old client who was sold a Rs 500. One look at the facts of the case and we are sure that even our visitors will be left with a similar feeling. In fact. Cases of ULIPs being mis-sold never cease to amaze us.000 ULIP. which was invested completely in equities.  Her only investments are in fixed deposits (FDs) 4. was the last thing she needed.  She does not have a regular source of income.  She is not very liquid (i.

this is not surprising since a lot of clients we know have bought ULIPs without appreciating how they can contribute to their investment/insurance objectives. on their risk profile and investment objectives (your financial planner is best placed to assess the suitability of a ULIP). Experts review Let us examine why ULIPs were unsuitable for her. We fail to understand how a Rs 500. Add to this the fact. in our client's case there was little scope for a ULIP to add any significant value to her portfolio. she could not afford to pay the premiums for the following years.000 ULIP amounted to professional misconduct of the highest order and coming from a reputed bank. that being relatively illiquid. 2. and selling her a Rs 500. To begin with. Now selling a ULIP to someone who does not need it is one thing. she was not explained what ULIPs are all about. 1. who has no source of income and who is just looking to remain invested in a low risk avenue that provides a regular income until she turns 60 years when her father's sizeable inheritance will come her way. “Unit Link Insurance Plan (ULIP)” .000 ULIP is another thing that ranks as even more atrocious. Given that she was not very well versed even with the basics of investment and insurance.000 ULIP could be of any assistance to a 55-Yr old lady.36. this is even more alarming. we believe selling her a Rs 500.

With a 5-Yr time frame before she inherited her father's wealth. until she turned 60 years old).37. a high-expense investment like ULIP. a) the ULIP should be for a long enough tenure and b) ULIP expenses should be competitive. 3. While ULIPs can add value to the individual's investment/insurance portfolio. he is lying). So for our client. she just did not have the minimum number of years necessary to wipe out the heavy initial expenses on the ULIP. was a loss-making proposition from day one. It is apparent from our client's details that she did not qualify on the tenure parameter to justify a ULIP. mutual funds are a better option.e. but at the time of opting for a ULIP there is no way to ascertain how stock markets are going to fare over the short-to-medium term (don't believe your agent if he claims to know better. so an investor is not going to earn a (significant) return on the ULIP in the initial years until the high expenses are recovered. ULIPs incur high expenses (sometimes as high as 60 per cent of the premiums) in the initial years. which is a suitable proposition over the long-term. Performance of stock markets (in the case of equity-heavy ULIPs) play a critical role in recovering the expenses. She simply needed a one-time low-risk interval investment (providing an income) that would “Unit Link Insurance Plan (ULIP)” . two points are necessary to achieve this. because she was not interested in an investment that was longer than 5 years (i. else for someone who does not need the life cover.

after 5 years she would inherit her father's money. then they should put up a notice to that effect in the branch. To her dismay. we urged her to take this up strongly with the bank. effectively she lost out on her capital as well. a big advantage with this particular case was the clear-cut time frame (i. serve her well over 5-Yr tenure. And since she was not in a position to pay the premium even in the second year. If the bank disagrees with what we have said.e. 5 years) that the client had in mind. Not to mention that there was no monthly income being generated by the product! Bank washes hands off the mis-selling When Personal finance met the client and learnt about the mis-selling of the ULIP. we would like to state that any selling (or mis-selling) that happens on the bank's premise is the bank's business whether that person is the bank's employee or a third-party employee or whether he is still with the bank or has been transferred or has quit the bank altogether. She just wished to be invested in an avenue for 5 years that would generate regular income. Also it was abundantly clear to us from our interaction with the client that she “Unit Link Insurance Plan (ULIP)” .38. the bank shirked responsibility over the mis-selling and professed helplessness in view of the fact that the agent (who mis-sold the ULIP) had been transferred to another city! To those who agree with the bank's excuse. How we would have done it differently? As financial planners. which sold her the ULIP.

These mutual funds are predominantly invested in debt to provide capital preservation. offer low-risk investors the opportunity to clock higher returns than debt funds at marginally higher risk. The client invested in an FMP (fixed maturity plan) over shorter tenures and roll over at the end of the tenure. Again. To provide for a source of income she could opt for the dividend option. Among all fixed income investment options. have a monthly income option on their FDs. POMIS is one of rare avenues that assures a monthly income. 2. A structured mutual fund product would have been suitable for the client. had a lower risk appetite. Being market-linked FMPs provide an opportunity to generate higher returns (than FDs) depending on how debt markets are placed at a point in time. although not capital-guaranteed investments. The “Unit Link Insurance Plan (ULIP)” . The Post Office Monthly Income Scheme is an option for investors looking for regular income. In view of these two points. the smaller equity component (usually 15-20 per cent of assets) provides for capital appreciation. 3. She could enhance her investments in FDs. she could opt for the dividend option. 4. We would have recommended that the client make the most of this opportunity to earn an assured monthly income.39. Many companies (like HDFC for instance. These funds. we would have recommended that: 1.

40. In our view. investing in ULIPs was a pointless exercise that should never have been recommended to the client. debt funds & FDs. “Unit Link Insurance Plan (ULIP)” . both these critical parameters could have been fulfilled better by low-risk FMPs. client could invest in FDs of such companies to avail of the monthly income option. As we have shown. It neither fulfilled her investment objective nor coincided with her investment tenure.

Is investment in ULIPs a risky option? Has the recent performance of the stock market left you with a regretful feeling for not being a part of the soaring market? Do you have a flavour for the market but also want some wise investment at the same time? If yes. However the best part of having an investment plan is that you can switch from one fund to another. Patil has invested in growth fund and has found that the investment in this particular fund is going to fall then he does have the choice of switching over to another fund which he finds safer. balanced or any other fund. then Unit Linked Insurance Plans (ULIP) is the answer. ULIPs also known as investment plans is a perfect package that comes with insurance coverage and investment options. ULIPs offer you the option to invest in anyone of the four funds. But you do need to keep in mind that the investments in stocks are subject to the vagaries of the market. You need to know your risk appetite and then make a choice accordingly by choosing an appropriate fund.41. which you find less risky. it could be a growth. For example if Mr. So that leaves you with the opportunity of investing in equities. If you are not inclined to take a lot of risk then you can certainly invest in secured or balanced fund. The volatility in equity markets can keep you uneasy and disturbed since you wouldn’t like to see your reserve being affected. For example if you choose LIC’s “Unit Link Insurance Plan (ULIP)” .

And honestly things couldn’t get any better when we bring its other features into the limelight. which are Bond. Balanced and Growth funds. ULIPs also have the facility “Unit Link Insurance Plan (ULIP)” . After the completion of one year. The performance of these plans has also been quite impressive with the recent figures revealing that the private insurers have acquired a business of Rs 4. Private players proved their innovation with the introduction of ULIPs.768 crore whereas LIC managed to obtain Rs 2.100 is charged for per switching of the fund. Within a given policy year.6 crore. ‘Jeevan Plus'. The performance of stock market especially in the last few months has made ULIPS all the more popular. Two factors considered responsible for the advent of ULIPs are firstlythe entry of private insurance companies in the insurance sector and the second factor being the decline of assured returns on endowment plans. It is the only option that lets you to be a part of the stock market and at the same time offers insurance cover.42. This feature works well when you have a surplus that you are looking to invest in a market-linked avenue.758. Rs. Secured. An innovative aspect of ULIPs is the 'top-up' facility. four switches are allowed free of charge. the policyholder has to choose any one from the four funds. It is like the best of two things clubbed into one. A top-up is a onetime additional investment that is paid apart from the annual premium of the policy.

43. term or money back policies. 00. But it is always advisable to pay the premiums regularly to avoid troubles. if you have paid your premiums dutifully for the first three years then you have missed out the payment of fourth year's premium then the insurance company will make the necessary adjustments from your investment surplus and will make sure that the policy remains active. This is subject to a maximum limit of Rs 1. Another important feature is that ULIPs disclose their portfolios regularly. For instance. Such facilities are not available with any other policy. “Unit Link Insurance Plan (ULIP)” . Another important aspect is its ‘liquidity’ factor. Since ULIP investments are NAV-based it is possible to withdraw a portion of your investments before maturity. This makes it a differentiating factor when compared to policies like endowment. Investment plans are particularly for those looking for security with an inclination for the share market. This gives you an idea of how the money is being managed. To make it easier to choose. LIC offers ‘Future Plus’ and ‘Jeevan Plus’ which are unit linked plans. It is possible only after the completion of the lock-in period. Such facility is not available with in a traditional endowment policy. With ULIPs one can also avail the tax benefits which is offered under Section 80C.000. that allows you to skip premiums if you have paid your premiums regularly for the first three years.

Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. As a continuation of the process. In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. To sum it up in all we can say that investment in a ULIP is not that risky as insurance part is covered and the risk is just that of a stock market. They can continue to sell the “Unit Link Insurance Plan (ULIP)” . The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. Companies having actuarial funded products have been asked to withdraw them over a period of time. Further they have been approved by the IRDA. Important news in print media regarding ULIPs 1.44. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. IRDA Keen to Ensure ULIPs Transparency.

The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority. Since it is also likely that you have other insurance plans like term “Unit Link Insurance Plan (ULIP)” • . you need to keep some points in mind to optimize the benefits associated with them.45. Six Points to Note. To reiterate. After Selecting To Investing In A ULIPSince ULIPs offer a lot of flexibility. can continue to enjoy the benefits of these products and have no reason to feel concerned. When you opt for these plans it is important you do this after taking your insurance consultant into confidence. our objective is to remove complexity in all unit linked products and ensure comparison across ULIP’s of all companies. so you need to tell him exactly what you are looking for in an insurance plan. • Notice we have recommended ULIP child plans/pension plans and even term insurance for most individuals. products till then and customers. both existing and new. Remember there is an insurance cover associated with ULIPs. 2. He is the one who is going to help you with the numbers.

Even if you are a high-risk investor. You are likely to have investments in mutual funds. this needs to reflect in all your investments including ULIPs. it is generally advisable to opt for conservative/balanced ULIPs (maximum 50% equity exposure). stocks. When you have a lot of aggressive ULIPs in your portfolio it means that you are overweight on equities. it is important you have a clear idea of exactly how much your insurance cover is worth after considering all your insurance plans. To temper your equity exposure. and your exposure to equities increases even further. Financial prudence dictates that risk reduces as age increases. and/or endowment. • Likewise. ULIPs also have an investment element. ULIPs derive their 'power to perform' from equities.46. This is necessary due to several reasons with financial “Unit Link Insurance Plan (ULIP)” • • • . This number will prove useful when you wish to beef up your investments in a particular asset. This number will prove helpful when you review your insurance cover at regular intervals. you must gradually shift your assets to a conservative ULIP option as your age advances. You need to add up the market value of all these investments while calculating your investment worth. it is prudent to diversify your ULIP investments. Add to this your investments in stocks and equity funds. Like with all investments. bonds and fixed deposits as well.

prudence being the most important reason. Further they have been approved by the IRDA. 3. “Unit Link Insurance Plan (ULIP)” . As a continuation of the process. Varying level of expenses in ULIPs is another reason to opt for ULIPs across insurance companies to keep expenses on the lower side. In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. IRDA keen to ensure ULIPs transparency.47. Varying flexibility levels in ULIPs across insurance companies is another factor that should make you opt for a ULIP from more than one insurance company. The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this.

our objective is to remove complexity in all unit linked products and ensure comparison across ULIP’s of all companies. both existing and new.48. To reiterate. Companies having actuarial funded products have been asked to withdraw them over a period of time. They can continue to sell the products till then and customers. “Unit Link Insurance Plan (ULIP)” . can continue to enjoy the benefits of these products and have no reason to feel concerned. The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority.

Shriram life “Unit Link Insurance Plan (ULIP)” .Birla sun Life 6.Aviva life 4.ING VYASA 9.49.Sahara life 13.LIC life 11.SBI life insurance 3.HDFC Standard life 7.Bharti AXA life 5. Prominent companies in the ULIP1.Kotak mahindra (old) 10.Reliance life insurance 2.Met life 12.ICICI Prudential life 8.

00. As per the data published in the economic times January 3 . (Indian merchants chamber) there the speaker . Future of ULIP.000 buyers are expected to buy life insurance products. where around 16. I have some information to add to this. and Gujarat.50.2008 issue by the Invest India Incomes and Savings Survey 2007. Clement had told us that according to the data collected by the CMIE ( Centre for Monitoring Indian Economy). It is also to be noticed here that IRDA has planned to enhance the penetration of insurance in rural areas. “Unit Link Insurance Plan (ULIP)” . In that. Mr. Maharashtra. the Insurance sector is the most capital generating sector in the recent years. we can say that life insurance is developing so fast that it is now reaching rural India where 90% of population has no insurance protection against losses. S. the demand forecasts for life insurance products is given.The future of ULIP is pretty bright as we can see the companies in the ULIP and mainly insurance sector is increasing day by day. This is followed by Andhra Pradesh. There the state of Bihar tops the list. the distribution of people who are planning to buy products of life insurance is given. When I had attended a seminar on ‘Accounting standards’ at IMC. In this endeavor it has planned to allow grocery shops to sell the insurance products in their shops like they sell recharge coupons for mobiles So hereby. in the services sector even ahead of banking.

moneycontrol. Bibliography Worldwide Web Sites • www.org • www. “Unit Link Insurance Plan (ULIP)” .com • www.com Newspapers • Economic Times • Times Of India For u khushboo ……………………………………………… Thank you.personalfn.51.irda.

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