INSURANCE AS TOOLS OF INVESTMENT

SUBMITTED TO: - SUBMITTED BY: -

Ms. Nidhi Kumari Sarthak Shukla
Faculty of Law Roll: 2038
8TH Semester

FINAL DRAFT SUBMITTED IN FULFILMENT OF THE COURSE TITLED LAW

OF INSURANCE FOR OBTAINING THE DEGREE B.B.A., LL.B.(HONS.) DURING
THE ACADEMIC YEAR 2021-22.

March 2022

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR, PATNA – 800001
DECLARATION BY CANDIDATE

I, SARTHAK SHUKLA, student of Chanakya National Law University hereby

declare that the work reported in the B.B.A., LL.B. (HONS.) project report
entitled: Insurance as tools of Investment submitted at Chanakya National
Law University, Patna is an authentic record of my work carried out under the
supervision of Ms. Nidhi Kumari. I have not submitted this work elsewhere for
any other degree or diploma. I am responsible for the contents of my Project
Report.

(Signature of the Candidate)

NAME: Sarthak Shukla

ROLL NO: 2038

COURSE: B.B.A., LL.B. (Hons.)

SEMESTER: 2021-2022 (8th)

SESSION: 2018-2023

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ACKNOWLEDGEMENT

I would like to thank my faculty Ms. Nidhi Kumari whose guidance helped
me a lot with structuring of my project. I take this opportunity to express
my deep sense of gratitude for her guidance and encouragement which
sustained my efforts on all stages of this project.

I owe the present accomplishment of my project to my friends, who helped

me immensely with materials throughout the project and without whom I
couldn’t have completed it in the present way.

I would also like to extend my gratitude to my parents and all those unseen
hands that helped me out at every stage of my project.

THANK YOU

NAME: Sarthak Shukla

ROLL NO: 2038

COURSE: B.B.A., LL.B. (Hons.)

SEMESTER: 2021-2022 (8th)

SESSION: 2018-2023

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CONTENTS

Declaration by Candidate........................................................................................................a

Acknowledgement....................................................................................................................b

Contents.....................................................................................................................................c

Chapter 1: Introduction..........................................................................................................1

Chapter 2: Insurance as Investment......................................................................................3

2.1. Concept............................................................................................................................3

2.2. Benefits............................................................................................................................3

2.3. Need for Insurance..........................................................................................................4

2.4. Types of Plans: Overview...............................................................................................4

Chapter 3: Permanent Life Insurance as Investment...........................................................7

3.1. Concept............................................................................................................................7

3.2. Benefits and Risks...........................................................................................................7

3.3. Pay-out benefits from plans in India...............................................................................8

Chapter 4: ULIP: Unit-Linked Insurance Policy................................................................10

4.1. Concept and Development in India...............................................................................10

4.2. Working Principle.........................................................................................................10

4.3. Benefits and Risks.........................................................................................................13

Chapter 5: Conclusion and Suggestion................................................................................16

Chapter 6: Bibliography........................................................................................................17

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CHAPTER 1: INTRODUCTION

The basic purpose of an insurance policy is to provide a cover to an individual and financial
security to his family. Though traditionally, Indians have chosen to invest in insurance plans
but many remain vary of money-back or endowment that offer returns too and their
expectations haven’t been fully met. For good returns, they have often eyed other financial
instruments such as direct equity, fixed deposits, PPF, etc. But then, these instruments don’t
offer good security of interest like life cover. A Unit Linked Insurance Plan (ULIP) is the
only financial instrument that rolls insurance and investment into one.

Insurance plans as tools of investment help people secure their interests in a two-fold manner
by offering lucrative cover and return on investment. Investment linked insurances are tools
of smart financial planning for individuals and families. Some of these plans are also subject
to tax saving benefits.

Investment based insurance make an ideal option for people with at least 12–15year
investment horizon and those who are looking for multiple benefits (life cover, returns, tax
benefits, riders) under one umbrella.

This article aims to elucidate the upon the value of insurance as tools of investment and throw
light on some such tools such as money back plans, endowment plans, ULIP.

OBJECTIVES OF THE STUDY:

 The researcher’s prime aim is to present a detailed study of "Insurance as tools of

Investment", through policy information, scholarly articles, affirmations and
decisions.
 The researcher aims to provide a critical and descriptive overview of the topics
arising.

RESEARCH METHODOLOGY:

The researcher will be relying on doctrinal method of research to complete the project. These
involve various primary and secondary sources of literature and insights. The citations have
been done under The Bluebook: A Uniform System of Citation (20th ed.).

RESEARCH QUESTIONS:

1. What is insurance?
2. What is investment?

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 3. What is insurance-based investment?
4. How is insurance useful towards investment portfolio?
5. What is the difference between a Term Life Insurance and a Permanent Life
Insurance?
6. What is a Unit-Linked Insurance Plan?

HYPOTHESES:

1) That market linked insurances are not so investment oriented and actual benefits
on both fronts are secondary to their separated counterparts.
2) That it is cost effective and beneficial to invest through insurances instead of
spending on separate funds.

SOURCES OF DATA

1. PRIMARY SOURCES
o INSURANCE ACT, 1938
o INVESTMENT LINKED INSURANCE PLANS IN INDIA
o JUDICIAL PRONOUNCEMENTS
2. SECONDARY SOURCES
o BLOGS
o BOOKS
o CASE COMMENTARIES
o JOURNALS

LIMITATIONS OF THE STUDY:

The researcher has territorial, material resource and time limitations in completing the
project.

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CHAPTER 2: INSURANCE AS INVESTMENT

2.1. Concept
Insurance industry is one of the corner stone of any economy and financial System. Insurance
industry contributes its major part in increasing the saving and the fund collected is utilized in
developmental programs.

The Financial sector in our country is in the process of change with the objective of the
overall growth of the economy. The insurance sector as everyone knows constitutes a very
important and vital financial intermediary for the growth of the economy.

Insurance has become part and parcel of the financial system because it:

a) Reduces the uncertainty of business loses.

b) Increases business efficiency.
c) Identifies key men.
d) Enhances the credit.
e) Takes care of welfare of the society.
f) Protect the wealth of the nation.
g) Helps to attain economic growth.
h) Reduces the inflation level.
2.2. Benefits1
a) Life insurance is brought not because someone is going to die, but because someone
is going to live.
b) Life insurance means peace of mind.
c) Life insurance promises payment of the full sum assured from the moment the first
premium is paid.
d) Life insurance encourages regular savings and guards against extravagances.
e) In most cases life insurance possesses a cash value after the first three years.
f) Life insurance removes the worry of looking after savings. Experts safely and
profitably invest money on insured’s behalf by experts.
g) Life insurance guarantees payment in cash and is backed by the Government of India.
h) Life insurance is a tax saving product.
i) Life insurance is free from loss, from theft, fire, misplacement etc.

1
Amy Fontinelli, Is Life Insurance Worth It? (https://www.investopedia.com/articles/active-trading/120814/life-
insurance-smart-investment.asp).

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 j) A life insurance contract is one sided, i.e., always in favour of the insured and his
family. One can withdraw from the contract anytime, but the company’s cannot.
k) Life insurance replaces uncertainty with certainty. It provides a complete, balanced
and perfect hedge against economic threats, which confront all person, the danger of
living too long or the danger of dying soon.
2.3. Need for Insurance
Unlike other avenues of savings where the amount saved with interest is payable only on
maturity, insurance plans provide for payment of the total sum assured along with a bonus, if
any, on any eventuality even before the maturity of the policy. And another advantage of
insurance is that an insurer can avail loans against the security of the policy from the
insurance company. Even banks and other financial institutions advances loans with
insurance policies as a collateral security. To provide for one’s family and perhaps; others in
the event of death, especially premature death. 2 Originally, policies were to provide for short
period of time, covering temporary risky situations, such as sea voyages. As lie insurance
became more established, it was realized what a useful tool it was for a number of situations,
including:

 Temporary needs/threats.
 Regular savings.
 Investment.
It is the insurance that builds up the savings of the society and thus safeguard the
economy from the ravages of inflation. Unlike regular saving products, investment
Products are traditionally lump sum investments, where the individual makes one-
time payment.

 Retirement.

2.4. Types of Plans: Overview

a) ULIP

One of the best investment plans available is Unit-Linked Insurance Plan. It is a life
insurance product, which provides risk cover to the insured along with the benefit of
investment returns. Recently, ULIP plans have become a popular choice of investment for
most investors. It offers a perfect combination of market-linked investment and life insurance

2
Financial planning and awareness in today’s world (https://life.futuregenerali.in/life-insurance-made-
simple/financial-planning/financial-planning-and-awareness-in-todays-world).

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at an affordable rate. Recognized as one of the best investment plans in the current market a
portion of the premium paid towards ULIPs is invested in market-linked securities like
equity, debt & bond to gain high returns and create wealth over the long-term period.

Moreover, along with the benefit of investment returns, ULIPs also provides insurance
coverage to the family of the insured in case of any eventuality. With the guaranteed return in
the long-term, the ULIP plan also works as a tax saver option. The insured can save on taxes
on the premium paid up to the maximum limit of Rs.1.5 lakhs and investment returns under §
80C and 10(10D) of Income Tax Act3.

b) Endowment Plan

Endowment plans are generally issued by insurance carriers and combine life
insurance benefits along with a modified savings scheme.

The policyholder gets his/her sum assured on a fixed date in future as per the policy terms
and conditions. However, in case of sudden death of the policyholder, the insurance company
will pay the sum assured (plus the bonus, if any) to the nominee of the policy. Besides, it is
also useful to secure one’s family post-retirement or to meet various financial needs such as
funding for children's education and/or marriage or buying a house.

c) Money-Back Plan

Under these plans, the policyholders receive frequent pay-outs as the death benefit, in case
the policyholder survives. These packages include both insurance and investment plans.

a money-back policy is a policy which gives money-back at regular intervals. This money-
back is paid during the plan tenure and is a percentage of the Sum Assured. Money-back pay-
outs are called Survival Benefits. These benefits are paid during the plan tenure and on
maturity, the remaining Sum Assured is paid along with vested bonuses. However, if the
insured dies during the plan tenure, the full Sum Assured is paid irrespective of the Survival
Benefits already paid. This is what makes the plan unique. Some of the salient features of
Money Back Policy are:

 The Survival Benefits are calculated as a percentage of the sum assured.

 Survival Benefits are paid at regular intervals during the plan tenure. There is a fixed
interval when the benefits would be paid. Every plan has a different pay-out structure.

3
Income Tax Act, 1961, §§ 10(10D), 80C.

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 Similarly, the percentage of Sum Assured paid as Survival Benefits is also not fixed
and varies between different plans.

 If the plan matures, the remaining portion of the Sum Assured (actual Sum Assured
less the Survival Benefits already paid) is paid as maturity benefit. However, in case
of death, the entire Sum Assured is paid irrespective of the money-back benefits
already paid.

 Money-back plans usually come as participating plans where bonuses are added. The
accrued bonus is then paid on maturity or on death.

 Riders are also available under many money-back plans. Rider benefits are paid as a
lump sum only when the contingency covered by the rider occurs during the plan
tenure.

A money back plan is ideal for people who want a guaranteed return on their investments and
are looking for regular pay-outs at the same time in addition to an insurance cover for
themselves for the same money they are putting in as premium. Unlike a standard life
insurance policy that only pays an amount after the maturity of the policy, the money back
plan starts to pay an amount that is called a ‘survival benefit’ over the lifetime of the policy.
Thus, the money back plan offers regular income along with a maturity benefit just like
standard life insurance policies.

d) Child Plan

Child insurance plans are an insurance cum investment product, aimed at securing the future
of a child. The parent who buys this plan becomes the policyholder, while the child shall be
the nominee. Child plans typically offer a lump-sum payment on the demise of the
policyholder, but the policy will not cease. Instead, all future premiums get waived, with the
insurer investing this money on behalf of the policyholder. The child will receive the money
at specified intervals, as planned under the policy.

Nearly all life insurance providers offer child plans in their portfolio. Some of them are
market-linked policies, allowing policyholders to invest in equities and debt, while others are
traditional plans, investing only in debt.

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CHAPTER 3: PERMANENT LIFE INSURANCE AS INVESTMENT

3.1. Concept
Permanent life insurance as an investment might make sense for certain high net-worth
individuals looking to minimize estate taxes. But for the average person, buying term and
investing the difference is usually the better option. Certain types of permanent life insurance
can also have an investment component4 that allows policyholders to accumulate a cash
value. Financial advisers and life insurance agents advocating for life insurance as an
investment, actually refer to the cash-value component of permanent life insurance and the
ways one can invest and borrow this money.

On the other hand, term life insurance provides an incomparable return on investment should
the beneficiaries ever have to use it. That being said, it provides a negative return on
investment if someone is among the majority of policyholders whose beneficiaries never file
a claim. In that case, insured will have paid a relatively low price for peace of mind, and can
celebrate the fact they’re still alive.

3.2. Benefits and Risks

There are many arguments in favour of using permanent life insurance as an investment.
However, many of these benefits aren’t unique to permanent life insurance. People can often
get them in other ways without paying the high management expenses and agent
commissions that come with permanent life insurance.

Here are a few of the most widely advocated benefits of permanent life insurance:

 Provides Life Cover: Life cover, which is an integral part of a life insurance policy,
protects the policyholder against the risk of death either for a specific term or for the
entire life.

 Financial Security to Family: In case of an untimely death of the life assured, the
life insurance company pays the beneficiary the sum assured, i.e., the pre-determined
lump sum amount. This way, life assured’s family is financially secured and wouldn’t
have to undergo hardship to make ends meet.

 Build Corpus With a life insurance policy, people can safely build a robust corpus
while they enjoy life’s precious moments with family. They also get complete
assurance of being provided the sum assured from the day of policy inception.
4
FPJ Bureau, Insurance as an Investment Option (https://www.freepressjournal.in/finance/insurance-as-an-
investment-option).

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  Financial Goals People can meet their short-term and long-term financial goals
without worries. Financial goals such as the child’s education and marriage or
building funds for retirement can be easily met with a life insurance policy.

 Opt for a Bank Loan People can opt for a bank loan on life insurance plan. There are
plans that cover for preferred tenure, and while a prospective bank approves a loan
application on the accumulation of the corpus.

 Tax Benefits All the premiums paid are tax exempted under § 80C of Income Tax
Act, 1961. It also makes maturity benefits tax free as per Section 10 (10D) of the
Income Tax Act, 1961. Not just that, the death benefit (pay-outs) received by the
beneficiary is tax exempted under § 10(10D) of the Income Tax Act, 1961.

 Peace of Mind A life insurance policy acts as a roadmap for meeting financial needs
across different stages of life, while at the same time offering tax exemptions.

Cons of Permanent Life Insurance:

While permanent life insurance can yield several benefits, there are some potential downsides
to keep in mind. Cost is one of the most important. Compared to term life insurance policies,
permanent life insurance can require one to pay higher premiums. If it turns out that someone
doesn't need insurance coverage for life, they may be paying premiums unnecessarily.

Permanent life insurance could also have tax implications for beneficiaries if insured decide
to surrender a policy or pass away with a loan outstanding. And taking loans or accelerated
benefits could reduce the death benefit that's paid out to beneficiaries when insured pass
away.

3.3. Pay-out benefits from plans in India

Cost of life insurance policy is definitely an important consideration. However, that does not
mean insurance plans that costs lower are always the best. It’s important to remember cost is
not the only factor to be considered. Features, benefits and other riders offered by the plan are
definitely to be considered. Best life insurance plans are always weighed on cost and benefit
basis. A plan that can provide maximum benefits according to one’s need within affordable
limits should be the right plan.5

5
Niraj Dey, 10 Reasons Why Life Insurance Is a Smart Investment? (https://groww.in/blog/how-smart-an-
investment-is-life-insurance/).

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It is also important to note that life insurance plans provide tax benefits 6 under § 80C of the
Income Tax Act, 1961 on the premiums that are paid every year. Also, the income earned and
lump sum benefits received from life insurance plans are exempted7 from income tax under
§10 (10D) of the Income Tax Act, 1961.

Life insurance can be a triple advantage plan- life protection, tax saving and wealth creation,
how much to invest in it depends on people’s affordability or income level.

Choosing life insurance plans according to income:

Life insurance investments are the crucial decisions that needs consideration of various key
factors. Choosing the plan according to income level is also one of the crucial elements.

Taking into consideration assets and liabilities, current expenses before deciding the coverage
requirement is important.

Income and age decide how big should be one’s life insurance coverage. With the income
multiplier method, one can estimate coverage requirement. Once there is clarity about
coverage requirement, financial goals and needs, a suitable life insurance policy can be
selected based on need and affordability.

In short, life insurance is not just an important requirement to provide financial protection to
loved ones, but also is an ideal investment choice to create wealth for future.

6
Income Tax Act, 1961, § 80C.
7
Income Tax Act, 1961, § 10(10D).

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CHAPTER 4: ULIP: UNIT-LINKED INSURANCE POLICY

4.1. Concept and Development in India

The concept of ULIP came in to existence in 1960’s to provide an optimum balance between
protection and investment. 8

ULIP distinguishes itself through the multiple benefits it provides to the policyholders. These
plans are designed with a view to help the customers to utilize the market opportunities by
investing in the share market, capital market and at the same time have the facility of Death
Benefit and Maturity Benefit. Unit-linked life insurance products are those where the benefits
are expressed in terms of number of units and unit price. They can be viewed as a
combination of insurance and mutual funds .The number of units that a customer would get
would depend on the unit price when he pays his premium. The daily unit price is based on
the market value of the underlying assets (equities, bonds, government securities, etc) and
computed from the net asset value. The advantage of unit-linked plans is that they are simple,
clear, and easy to understand. Being transparent the policyholder gets the entire upside on the
performance of his fund. Besides all the advantages they offer to the customers, unit-linked
plans also lead to an efficient utilization of capital.9

Unit-linked products are exempted from tax and they provide life insurance. Investors
welcome these products as they provide capital appreciation even as the yields on
government securities have fallen below 6 per cent, which has made the insurers slash pay-
outs.

4.2. Working Principle

According to the IRDA, a company offering unit-linked plans must give the investor an
option to choose among debt, balanced and equity funds.

If someone chooses a debt plan, majority of the premiums will get invested in debt securities
like gifts and bonds. If someone chooses equity, then a major portion of the premiums will be
invested in the equity market.

8
Anil Sahgal, Investing in insurance (https://www.businesstoday.in/moneytoday/expert-view/investing-in-
insurance/story/6746.html).
9
Financial Planning and ULIPS: A Match Made in Heaven (https://life.futuregenerali.in/life-insurance-made-
simple/savings-investments/financial-planning-and-ulips-a-match-made-in-heaven).

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The plan chosen would depend on risk profile and investment need. The ideal time to buy a
unit-linked plan is when one can expect long-term growth ahead. This is especially so if one
also believes that current market values (stock valuations) are relatively low. So, while opting
for a plan that invests primarily in equity, the buzzing market could lead to windfall returns.

If one invests in a unit-linked pension plan early on, say when one is 25, one can afford to
take the risk associated with equities, at least in the plan's initial stages. However, as one
approaches retirement the quantum of returns should be subordinated to capital preservation.
At this stage, investing in a plan that has an equity tilt may not be a good idea. Considering
that unit-linked plans are relatively new launches, their short history does not permit an
assessment of how they will perform in different phases of the stock market. Even if one
views insurance as a long-term commitment, investments based on performance over such a
short time span may not be appropriate.

Simply put, ULIPs work very similar to a mutual fund with a life cover thrown in. They have
a mandate to invest the premiums in varying proportions in g-secs (government securities),
bonds, the money markets (call money) and equities. The primary difference between
conventional savings-based insurance plans like endowment and ULIPs is the investment
mandate- while ULIPs can invest up to 100% of the premium in equities, the percentage is
much lower (usually not more than 15%) in case of conventional insurance plans. ULIPs are
also available in multiple options like ‘aggressive’ ULIPs (which can invest upto 100% in
equities), ‘balanced’ ULIPs (which invest 40-60% in equities) and ‘debt’ ULIPs (which
invest only in debt and money market instruments). The exact expense structure/ break-up for
ULIPs is as transparent as one would have liked.

Types

Depending upon the death benefit, there are broadly two types of ULIPs. Under Type-I ULIP,
the nominee gets the higher of Sum Assured and Fund Value while under Type-II ULIPs, the
nominee of the policy holder gets the sum of Sum Assured and Fund Value in the event of
demise of the policy holder.

There are a variety of ULIP plans to choose from based on the investment objectives of the
investor, his risk appetite as well as the investment horizon. Some ULIPs play it safe by
allocating a larger portion of the invested capital in debt instruments while others purely

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invest in equity. Again, all this is totally based on the type of ULIP chosen for investment and
the investor preference and risk appetite.

Charges

Unlike traditional insurance policies, ULIP schemes have a list of applicable charges that are
deducted from the payable premium.10 The notable ones include policy administration
charges, premium allocation charges, fund switching charges, mortality charges, and a policy
surrender or withdrawal charge. Some Insurer also charge "Guarantee Charge" as a
percentage of Fund Value for built in minimum guarantee under the policy.

Broadly speaking, ULIP expenses are classified into three major categories:

1) Mortality charges:

Mortality expenses are charged by life insurance companies for providing a life cover to the
individual. The expenses vary with the age, sum assured and sum-at-risk for the individual.
There is a direct relation between the mortality expenses and the above-mentioned factors. In
a ULIP, the sum-at-risk is an important reference point for the insurance company. Put
simply, the sum-at-risk is the difference between the sum assured and the investment value
the individual's corpus as on a specified date.

2) Sales and administration expenses:

Insurance companies incur these expenses for operational purposes on a regular basis. The
expenses are recovered from the premiums that individuals pay towards their insurance
policies. Agent commissions, sales and marketing expenses and the overhead costs incurred
to run the insurance business on a day-to-day basis are examples of such expenses.

3) Fund management charges (FMC):

These charges are levied by the insurance company to meet the expenses incurred on
managing the ULIP investments. A portion of ULIP premiums are invested in equities,
bonds, gsecs and money market instruments. Managing these investments incurs a fund
management charge, similar to what mutual funds incur on their investments. FMCs differ
across investment options like aggressive, balanced and debt ULIPs; usually a higher equity
option translates into higher FMC.

10
Jatinder Loomba, Risk Management and Insurance Planning, PHI Learning, p. 263.

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Apart from the three expense categories mentioned above, individuals may also have to incur
certain expenses, which are primarily `optional' in nature- the expenses will be incurred if
certain choices that are made available to individuals are exercised.

a) Switching charges:

Individuals are allowed to switch their ULIP options. For example, an individual can switch
his fund money from 100% equities to a balanced portfolio, which has say, 60% equities and
40% debt. However, the company may charge him a fee for `switching'. While most life
insurance companies allow a certain number of free switches annually, a switch made over
and above this number is charged.

b) Top-up charges:

ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in addition to the
premium amount for a particular year. Insurance companies deduct a certain percentage from
the top-up amount as charges. These charges are usually lower than the regular charges that
are deducted from the annual premium.

c) Cancellation charges:

Life insurance companies levy cancellation charges if individuals decide to surrender their
policies (usually) before three years. These charges are levied as a percentage of the fund
value on a particular date.

4.3. Benefits and Risks

Benefits include the following:

a) Market Linked Returns

With a ULIP plan, one can earn market-linked returns. A portion of the premium contributed
towards the plan is invested in different market instruments including equity and debt-
focused funds in varying proportions. Therefore, one has a chance to earn high returns on
investments. One can also use the information from the ULIP NAV to keep a tab on the
performance of investments and make sure one has the best mix of high-performance fund
options.

b) Flexibility

ULIP plans give a lot of flexibility. It has the option to switch between different funds to
meet changing needs, without incurring any extra charge. One can also make partial

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withdrawals from the fund when required. To top it all, ULIP plans allow to invest additional
sums of money in the form of top-ups over the regular premiums.

c) Tax Benefits

The premium paid towards a ULIP plan is eligible for tax deductions under §80C 11. Also, the
gains and income earned from ULIPs are tax-free. Even the short-term gains that one earns
by switching between funds are tax-free. In case of any eventuality, the death benefit received
by the beneficiary is tax exempted under Section 10(10D)12.

d) Corpus for Important Milestones in Life

At different stages of life, one requires a significant amount of money to fulfil needs and
aspirations. One may require money to build home, fund business, or finance child’s higher
education. With ULIPs, one can have the flexibility to make partial withdrawals of funds
when needed to address essential needs. Therefore, one can smartly plan future financial
requirements with ULIP plans.

e) Protecting Child's Future

With ULIPs, one can invest in market-linked equity and debt funds to earn higher market
returns. This, in turn, would help to create a corpus that can be used to secure child’s future.
One can use the money to finance child’s education, his or her marriage and any other
expenses that may come up from time to time.

f) Financial Security After Retirement

Equity-focused funds deliver high investment returns over the long term. Therefore, ULIP
plans can also add value to retirement portfolio. If one wishes to have a significant amount of
money once they retire, they must focus on investments into equities while they are in their
20s and 30s. With age, one can gradually move onto making investments into more
conservative debt funds.

Risks:

Since ULIP (Unit Linked Insurance Plan) returns are directly linked to market performance
and the investment risk in investment portfolio is borne entirely by the policy holder, one
needs to thoroughly understand the risks involved and one’s own risk absorption capacity
before deciding to invest in ULIPs.

11
Income Tax Act, 1961, § 80C.
12
Income Tax Act, 1961, § 10(10D).

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A portion of premium goes towards mortality charges i.e., providing life cover. The
remaining portion gets invested into funds of the policyholder's choice. Invested funds
continue to earn market linked returns.

ULIP policy holders can make use of features such as top-up facilities, switching between
various funds during the tenure of the policy, reduce or increase the level of protection,
options to surrender, additional riders to enhance coverage and returns as well as tax benefits.

Providers

There are several public and private sector insurance providers that either operate solo or
have partnered with foreign insurance companies to sell unit linked insurance plans in India.

The public insurance provider include: LIC of India.

While some of the private insurance providers include: Aegon Life, Canara, Edelweiss Tokio
Life Insurance, Reliance Life, , SBI Life, ICICI Prudential, HDFC Life, Bajaj Allianz, Aviva
Life Insurance, Max life insurance , Kotak Mahindra Life, and DHFL Pramerica Life
Insurance.

CRITERIA ULIP MUTUAL FUNDS TRADITIONAL PLANS

Type Investment cum Insurance Pure Investment Plan Pure Insurance Plan
Plan

Investment The money is invested in The money is invested The money is invested in
equity, debt or hybrid in equity, debt and equity and debt instruments as
funds as per the investors money market per insurer’s decision
selection instruments as per
investors decision

Liquidity Post the mandatory lock- No such lock-in period Investment is locked till
in period of 5 years maturity

Loyalty They are given in the No such loyalty Only participating plans offer
form of booster additions additions loyalty additions provided you
over the investment stay invested for a loner term
tenure

Risk Moderate Risk High Risk Low Risk

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CHAPTER 5: CONCLUSION AND SUGGESTION

Financial planning is an essential aspect of our working years. While people may not feel the
need to manage finances or save money while they are young, they need to understand the
fact that responsibilities will not remain the same. With age, income will increase and so do
the liabilities. Therefore, it is crucial that one starts early with managing expenditures and
maximising savings so that achieving life goals and deal with emergencies is possible.

It is important to note that the returns on investment through market linked insurances are not
so high compared to purely investment plans however taking the cover benefits into
consideration these hybrid plans make for good tools of financial planning and security. This
first hypothesis stands true.
India is firmly on the path of reforms since 1991 and opening of FDI in investment.
Financial operators have been liberalised to take decisions in a developed and regulated
environment and assume responsibility for their decisions. Similar freedom has been given to
insurance industry to invest their funds in assets they consider appropriate, keeping in view
the interests of their clients and the opportunities available in the environment. However,
the environment should be well developed and regulated so that investment manager enjoys
investing. Notwithstanding, this freedom needs to be painstakingly aligned to dodge any
untoward occurrences and make the reforms sustainable.
Investment plan is the simplest ways to build wealth over the time. Life insurance companies
offer various investment plan options. These are the wealth creation products for the future
when you will require it. It requires planning and understanding of different options
available.
With a ULIP plan or a Return-on-Investment plan like endowment in financial portfolio, one
can not only protect the family from any eventuality but also put savings to work and create
long-term wealth. Indeed, no other investment tool is as diverse as an insurance plan.

Thus, second hypothesis stands true that it is cost effective and beneficial to invest through
insurances instead of spending on separate funds. Although the amount of return may not be
so lucrative compared to open market investment, the insurance linked plans give decent
returns at moderate risk which the market plans cannot guarantee.

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CHAPTER 6: BIBLIOGRAPHY

The researcher has consulted following sources to complete the research paper:

1. Books:
o Avtar Singh, Law of Insurance (1st ed. Eastern Book Company, 2017).
o S. R. Myneni, Law of Insurance (2nd ed. Asia Law House, 2019).
o K. S. N. Murthy and K. V. N. Sarma, Modern Law of Insurance in India (6th
ed. LexisNexis, 2019).
o Gaurav Varshney, Insurance Laws (1st ed. LexisNexis, 2017).
2. Websites:
o Academike
o SCConline Blog
o LexisNexis
o India Law Journal
o Investopedia

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