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)”

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

1961. The funds offered by ULIPs “Unit Link Insurance Plan (ULIP)” . What’s more? The investments in FDs qualify for tax benefits too under Section 80 C of the Income Tax Act. investment may seem customary. lately banks have been offering an 8% interest rate per annum for investors.7. provided the minimum tenure selected is five years. When the stock markets are volatile and unpredictability becomes a hindrance to encourage further investment. A reason good enough to invest in Fixed Deposits (FD). To top it all if the debt market doesn’t attract you because of its low interest rate. 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. These are provided by the insurance companies or even banks. it leaves the customers perplexed. If the inclination to invest in stock market still persists but are still skeptical. However. 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. try via Unit Linked Insurance Plan (ULIP) route. ULIPs offer insurance protection along with the option to invest in the stock market. with the switch over option you can move to that fund. It provides cushion to those who are risk averse.

the insurance company will recover its costs of distribution and administration as well as margins.000 to Rs 30. Simple Explanation Of ULIPs – Suppose that you buy a ULIP when you are 30 years old. he would end up paying anywhere between Rs 40. Based on your risk profile. costs and margins are recovered commonly between the investment portion and the insurance portion.000 to Rs 50. The premium that you will pay over a period of 20 years will work out to around Rs 25. the amount of investment and cost of insurance will not change over a period of time. For a similar example as above. if you opt to invest in a mutual fund and buy a term policy.000 as insurance premium. your premium will remain fixed throughout the term of the policy. In a ULIP.8. if the 30 year old were to take a term insurance policy for Rs 5 lakh. if you were to buy a term policy and a mutual fund. The “Unit Link Insurance Plan (ULIP)” . So that means. In a term policy. give the investors an exposure to both high and low equity investments.000 depending on the company you choose. The sum assured is Rs 5 lakh and the term is 20 years. However. make your pick. This vast difference in cost of insurance is mainly because of cost of distribution and administration as also the margins of the insurer.

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

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

He has an above-average risk appetite.000. This works out to the client being insured for a tenure of 46 years (i.38).11. 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)” . 84 .000.  He has been recommended a ULIP (unit linked insurance plan) by his insurance agent with a sum assured of Rs 5. In this article we discuss the query and our solution for the same.e. the two products are different and ideally you should have both in your portfolio. As financial planners. We were recently faced with a rather interesting query related to ULIPs.000.000 till he reaches the age of 84 years.  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 client’s age is 38 years and he wants a life insurance cover for Rs 5.000. we get queries from our clients on how to go about managing their finances. Let us look at the information available.

We took into consideration the client’s current financial portfolio.000. he would need to buy a term plan for more than the sum assured recommended on the ULIP (i. which allows upto 35% exposure to equities. now let’s shift our focus to his investments. The investment component Having taken care of the client’s insurance needs.000 per annum for a 30-Yr period. 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. we knew from our interaction with the client and based on the Human Life Value Calculations that he is underinsured.12. company in question) option. Rs. the annual premium he would have to shell out would be approximately Rs 30. Even if we were to consider his sum assured to be Rs 5. Bearing this in mind. We have always maintained that one’s interests would be best served if he keeps his life insurance and investment needs distinct.e. The insurance component To begin with.000.000). Given below is our solution based on the client’s needs. An immediate action point for him would be to buy a term plan. And considering his annual income.000 (as per the ULIP) for a term plan. 5.

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

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

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

The minimum investment amounts are laid out by the fund house. “Unit Link Insurance Plan (ULIP)” .e. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested. The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts. In ULIPs. quarterly or monthly basis. 1. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. half-yearly.16. 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. making premium payments on an annual. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route. 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). determining the premium paid is often the starting point for the investment activity. i. 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.

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

While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory. the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. 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. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. albeit most fund houses do so on a monthly basis. There is lack of consensus on whether ULIPs are required to disclose their portfolios. corpus being accumulated. During our interactions with leading insurers we came across divergent views on this issue. Some insurance companies do declare their portfolios on a monthly/quarterly basis.18. 3. regular portfolio “Unit Link Insurance Plan (ULIP)” .

disclosures on the other hand can enable investors to make timely investment decisions. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house. he “Unit Link Insurance Plan (ULIP)” . Flexibility in Altering Asset Solution As was stated earlier. For example plans that invest their entire corpus in equities (diversified equity funds). 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. This can prove to be very useful for investors.19. he could have to bear an exit load and/or entry load. 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. Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. for example in a bull market when the ULIP investor's equity component has appreciated. a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). offerings in both the mutual funds segment and ULIPs segment are largely comparable. 4.

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

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

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)” .

balanced funds and debt funds to name a few. Who can invest in ULIPs? It is open to any resident of India who is above 18 years of age. respectively. the investment horizon and so on. ULIPs: How it differs from mutual funds Even as ULIPs are selling like hot cakes. “Unit Link Insurance Plan (ULIP)” . 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. diversified equity funds. ULIPs can be termed as mutual fund schemes with an insurance component. 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. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain. the reason for investment. Generally speaking.e. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. i.23.

No upper limits. 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. But still here are some basic differences – ULIPs Investment amountsDetermined by the investor and can be modified as well. 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.24. While some insurers claim that disclosing portfolios on a “Unit Link Insurance Plan (ULIP)” .

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

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

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

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

if you had taken a ULIP child plan earlier on. a long-term investment objective like retirement planning could do with an equity 'push'. some of your existing ULIPs are probably nearing maturity. Likewise a ULIP endowment plan can help you meet investment objectives like buying property or setting up a business for instance. However. 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. Again. For instance. Here is where a ULIP pension plan can add value to your retirement portfolio. 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. If you haven't insured yourself as yet. “Unit Link Insurance Plan (ULIP)” . term plans remain your cheapest option no matter when you take one. go for a term insurance plan. 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. In terms of costs. now is the time.29.

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

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. it will ensure that you are not faced with any unpleasant surprises at a later stage. ULIPs have far too many critics. This way you will be fully aware of what you are getting into and make an informed decision. I present a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right ULIP. Read ULIP-related information available on “Unit Link Insurance Plan (ULIP)” .31. the various options available and understand their working. Understand the Concept of ULIPs Do as much homework as possible before investing in an ULIP. After having interacted with a number of investors who were very disillusioned with their ULIPs investments. Gather information on ULIPs. often the disappointment stemmed from poor and inappropriate selection. 1. 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. More importantly.

only with the objective of clocking attractive returns can and does spell disaster in most cases. 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. 2. newspapers and sales literature circulated by insurance companies. 3. financial Web sites. Your risk appetite should be the deciding criterion in choosing the plan. then an aggressive investment option with a higher equity component is likely to be more suited.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). Compare ULIP Products from Various Insurance Companies Compare products offered by various insurance companies on parameters like expenses. Opting for a plan that is lop-sided in favour of equities. For example. As a result if you have a high risk appetite. Similarly your existing investment portfolio and the equity-debt allocation therein also need to be given due importance before selecting a plan.

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

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

has less cash) It is apparent from the client's age and investment profile that a Rs 500.  Her only investments are in fixed deposits (FDs) 4. this case had us completely taken aback. so investing for a regular income was her top priority 3. One look at the facts of the case and we are sure that even our visitors will be left with a similar feeling.  She will inherit a huge sum of money at the age of 60 years 5.  She is not very liquid (i. there was no reason to recommend anything even remotely risky. Cases of ULIPs being mis-sold never cease to amaze us.000 ULIP.  She does not have a regular source of income. was the last thing she needed. which was invested completely in equities.e. While ULIPs could be suitable to individuals based “Unit Link Insurance Plan (ULIP)” .  She is not very literate in matters of investment and finance 6.35.000 pa premium ULIP by a private sector bank.  The client is 55 years old 2. In fact. Even though we have seen several cases of ULIPs (unit-linked insurance plans) being sold to the most improbable of investors. A very famous case study on mis-selling of ULIPs. Facts of the case: 1. One such case involved a 55-Yr old client who was sold a Rs 500.

she could not afford to pay the premiums for the following years. this is even more alarming. 2. Now selling a ULIP to someone who does not need it is one thing.000 ULIP amounted to professional misconduct of the highest order and coming from a reputed bank. 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. in our client's case there was little scope for a ULIP to add any significant value to her portfolio. Add to this the fact. she was not explained what ULIPs are all about.000 ULIP could be of any assistance to a 55-Yr old lady. To begin with. We fail to understand how a Rs 500. we believe selling her a Rs 500.000 ULIP is another thing that ranks as even more atrocious. “Unit Link Insurance Plan (ULIP)” . on their risk profile and investment objectives (your financial planner is best placed to assess the suitability of a ULIP). 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. that being relatively illiquid. Given that she was not very well versed even with the basics of investment and insurance.36. and selling her a Rs 500. Experts review Let us examine why ULIPs were unsuitable for her. 1.

37. because she was not interested in an investment that was longer than 5 years (i. mutual funds are a better option. 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. which is a suitable proposition over the long-term. She simply needed a one-time low-risk interval investment (providing an income) that would “Unit Link Insurance Plan (ULIP)” . a high-expense investment like ULIP. else for someone who does not need the life cover. Performance of stock markets (in the case of equity-heavy ULIPs) play a critical role in recovering the expenses. 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. until she turned 60 years old). So for our client. ULIPs incur high expenses (sometimes as high as 60 per cent of the premiums) in the initial years.e. With a 5-Yr time frame before she inherited her father's wealth. 3. he is lying). a) the ULIP should be for a long enough tenure and b) ULIP expenses should be competitive. While ULIPs can add value to the individual's investment/insurance portfolio. she just did not have the minimum number of years necessary to wipe out the heavy initial expenses on the ULIP. so an investor is not going to earn a (significant) return on the ULIP in the initial years until the high expenses are recovered. two points are necessary to achieve this.

serve her well over 5-Yr tenure. after 5 years she would inherit her father's money.38.e. And since she was not in a position to pay the premium even in the second year. How we would have done it differently? As financial planners. a big advantage with this particular case was the clear-cut time frame (i. She just wished to be invested in an avenue for 5 years that would generate regular income. 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. To her dismay. then they should put up a notice to that effect in the branch. 5 years) that the client had in mind. If the bank disagrees with what we have said. Also it was abundantly clear to us from our interaction with the client that she “Unit Link Insurance Plan (ULIP)” . 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. we urged her to take this up strongly with the bank. 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. effectively she lost out on her capital as well. which sold her the ULIP.

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

40. It neither fulfilled her investment objective nor coincided with her investment tenure. 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. In our view. “Unit Link Insurance Plan (ULIP)” . investing in ULIPs was a pointless exercise that should never have been recommended to the client. As we have shown. debt funds & FDs.

which you find less risky. However the best part of having an investment plan is that you can switch from one fund to another. 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. then Unit Linked Insurance Plans (ULIP) is the answer. For example if Mr. ULIPs also known as investment plans is a perfect package that comes with insurance coverage and investment options. For example if you choose LIC’s “Unit Link Insurance Plan (ULIP)” . So that leaves you with the opportunity of investing in equities.41. it could be a growth. But you do need to keep in mind that the investments in stocks are subject to the vagaries of the market. 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. ULIPs offer you the option to invest in anyone of the four funds. The volatility in equity markets can keep you uneasy and disturbed since you wouldn’t like to see your reserve being affected. You need to know your risk appetite and then make a choice accordingly by choosing an appropriate fund. If you are not inclined to take a lot of risk then you can certainly invest in secured or balanced fund.

Within a given policy year.42. which are Bond. And honestly things couldn’t get any better when we bring its other features into the limelight. Rs. An innovative aspect of ULIPs is the 'top-up' facility. Balanced and Growth funds. This feature works well when you have a surplus that you are looking to invest in a market-linked avenue. A top-up is a onetime additional investment that is paid apart from the annual premium of the policy. Private players proved their innovation with the introduction of ULIPs.768 crore whereas LIC managed to obtain Rs 2. the policyholder has to choose any one from the four funds. ‘Jeevan Plus'. four switches are allowed free of charge. ULIPs also have the facility “Unit Link Insurance Plan (ULIP)” . 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 4.758.6 crore. It is like the best of two things clubbed into one. It is the only option that lets you to be a part of the stock market and at the same time offers insurance cover. After the completion of one year. Secured. 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.100 is charged for per switching of the fund. The performance of stock market especially in the last few months has made ULIPS all the more popular.

This is subject to a maximum limit of Rs 1. Investment plans are particularly for those looking for security with an inclination for the share market. Such facility is not available with in a traditional endowment policy. Since ULIP investments are NAV-based it is possible to withdraw a portion of your investments before maturity. term or money back policies. Another important aspect is its ‘liquidity’ factor. This gives you an idea of how the money is being managed. With ULIPs one can also avail the tax benefits which is offered under Section 80C. It is possible only after the completion of the lock-in period. Another important feature is that ULIPs disclose their portfolios regularly. But it is always advisable to pay the premiums regularly to avoid troubles. that allows you to skip premiums if you have paid your premiums regularly for the first three years.43. This makes it a differentiating factor when compared to policies like endowment. To make it easier to choose. 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. Such facilities are not available with any other policy. For instance. “Unit Link Insurance Plan (ULIP)” . 00.000. LIC offers ‘Future Plus’ and ‘Jeevan Plus’ which are unit linked plans.

The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. Companies having actuarial funded products have been asked to withdraw them over a period of time. we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. 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. As a continuation of the process. Important news in print media regarding ULIPs 1. They can continue to sell the “Unit Link Insurance Plan (ULIP)” . Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. IRDA Keen to Ensure ULIPs Transparency. Further they have been approved by the IRDA. 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. 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.44.

both existing and new. so you need to tell him exactly what you are looking for in an insurance plan. He is the one who is going to help you with the numbers. can continue to enjoy the benefits of these products and have no reason to feel concerned. After Selecting To Investing In A ULIPSince ULIPs offer a lot of flexibility. To reiterate. Since it is also likely that you have other insurance plans like term “Unit Link Insurance Plan (ULIP)” • . products till then and customers. • Notice we have recommended ULIP child plans/pension plans and even term insurance for most individuals. you need to keep some points in mind to optimize the benefits associated with them. Remember there is an insurance cover associated with ULIPs.45. 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. our objective is to remove complexity in all unit linked products and ensure comparison across ULIP’s of all companies. Six Points to Note. 2. When you opt for these plans it is important you do this after taking your insurance consultant into confidence.

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

“Unit Link Insurance Plan (ULIP)” . 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. prudence being the most important reason. As a continuation of the process. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. 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. 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.47. 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. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. 3. Further they have been approved by the IRDA. Varying level of expenses in ULIPs is another reason to opt for ULIPs across insurance companies to keep expenses on the lower side.

our objective is to remove complexity in all unit linked products and ensure comparison across ULIP’s of all companies. can continue to enjoy the benefits of these products and have no reason to feel concerned. “Unit Link Insurance Plan (ULIP)” .48. 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. both existing and new. 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.

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

In that. Mr. This is followed by Andhra Pradesh.50. When I had attended a seminar on ‘Accounting standards’ at IMC.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. As per the data published in the economic times January 3 . 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. 00. the demand forecasts for life insurance products is given.2008 issue by the Invest India Incomes and Savings Survey 2007. S. There the state of Bihar tops the list. (Indian merchants chamber) there the speaker . 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. I have some information to add to this. the distribution of people who are planning to buy products of life insurance is given. Clement had told us that according to the data collected by the CMIE ( Centre for Monitoring Indian Economy). where around 16. “Unit Link Insurance Plan (ULIP)” . and Gujarat. Maharashtra. in the services sector even ahead of banking. It is also to be noticed here that IRDA has planned to enhance the penetration of insurance in rural areas. Future of ULIP. the Insurance sector is the most capital generating sector in the recent years.000 buyers are expected to buy life insurance products.

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

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