Friday 19 June 2015

How Ulip scores over others as a better investment product


ULIP, ULIP NAV
What's in it for you
Unit-linked insurance plans (Ulips) are a category of goal-based financial solutions that offer dual benefits of protection and investment. Your unit-linked insurance plan is linked to the capital market and offers you flexibility to invest in equity or debt funds depending upon your risk appetite.

Ulips are typically bought for long-term capital gains and offer a protection cover too. Though much has been written about Ulips in the past, a lot has changed for the better in the past four years. In 2010, insurance regulator Irda issued new guidelines for Ulips to improve the returns for investors by reducing the charges and to ensure that the new product is sold and bought as a long-term protection and savings tool.

In the last few years, the demand for traditional insurance plans has gone up considerably overshadowing the Ulips. So what is the new Ulip all about and what’s in it for you as a customer.

What makes Ulip a better investment product? First of all, it can help customers avoid everyday hassles of managing stocks: Investing in Ulip provides you expertise in fund management, multiple options to choose a fund on which the premiums will be invested and different investment strategies like, for instance, opportunist and balanced approaches.

Secondly, a Ulip can help you to churn your portfolio. It allows you to shift your money from one fund to another without disturbing your long-term financial plan by using fund switch, premium redirection or partial withdrawal options.

In fund switching, you can shift your money from equity funds to debt funds or vice-versa while the premium pedirection strategy allows you to redirect future premiums to any fund of your choice while keeping your existing fund composition intact. The partial withdrawal option in a Ulip provides the flexibility to its policyholders to ‘partially’ pull out some amount of money from the accumulated fund value within the policy term.

Other unique features of an Ulip include the duel benefits of investment and insurance cover, multiple investment options and tax benefits.

Ulip is a two-in-one plan, giving the investor twin benefits of life insurance cover and investment. The multiple investment options of an Ulip allow investors to invest in multiple fund options based on lifestage needs and risk profiles. Plus, investments made in a Ulip enjoy tax benefits under Section 80C & 10(10D) as per prevailing tax laws.

While investing in Ulips, an investor should keep in mind the charges applicable, the payment policy in case of premature surrender, the investment options offered, limitations and exclusions mentioned in the policy document, lapsing and its consequences, various disclosures required and also the various benefits offered.

Busting various myths 

>> Ulips are expensive: Irda has capped the charges by regulation since September 2010. In simple words, the overall charges cannot exceed the prescribed limit set by the regulator. The net reduction in yield cannot be more than 3 per cent for a 10-year term policy. This reduction in yield includes all charges, except mortality and morbidity charges. Even fund management charges (FMC) are capped at 1.35 per cent. This cap on charges ensures a reasonable value proposition for customers.

>> Ulips offer low returns: There are several factors that enable an investor to earn good returns. First of all, one has to invest for the long term. Best Ulip insurance plan offered by life insurance companies are a good long-term avenue for investing in a disciplined manner, as it also offers the valuable life cover.

Finally, your choice for funds and judicious switching, redirection of funds/ premiums can ensure healthy growth of your fund. Life insurance companies have also leveraged the power that internet brings and have introduced online best Ulip insurance policy that are easy to buy and extremely cost effective.


(Source: http://www.mydigitalfc.com/insurance/how-ulip-scores-over-others-better-investment-product-699)

Wednesday 3 June 2015

Should you continue to have faith in your ULIP Policy

All of us who have invested in ULIPs over the years have this question before us? In most situations ULIP have given below expected returns and you may tempted to think of cutting your loss by surrendering and investing the amount in other higher return investments. Let us therefore examine, whether it is good to surrender or continue with it till maturity. What is ULIP? Unit Linked Insurance Policy (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives investors the benefits of both insurance and investment under a single integrated plan.

 What is ULIP?
Unit Linked Insurance Policy (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives investors the benefits of both insurance and investment under a single integrated plan.

How it works?
A part of the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes.
The money collected by the insurance provider is utilized to form a pool of fund that is used to invest in various markets instruments (debt and equity) in varying proportions just the way it is done for mutual funds . Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both based on their investment need and appetite.

Just the way it is for mutual funds, ULIP policy holders are also allotted units and each unit has a net asset value ( NAV ) that is declared on a daily basis.
The NAV is the value based on which the net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another based on market conditions and the fund’s performance.

Performance of ULIPs
 ULIP is a market related instrument, and if the market does well so will be the ULIPs. However, research suggests that not all ULIPs have performed well and have given reasonable returns to the investors. Though the market is the primary reason for ULIP’s performance, it also depends on what charges and fees a ULIP deducts from your investments.

 The common charges are Premium allocation charge, Top up allocation charge, Mortality Charges, Fund management charge, Policy administration charge, switching charge and surrender charge etc. Besides, the surrender value is calculated as Fund Value – Surrender Charges, where fund value is Total no. of units under the policy NAV of the fund chosen. However, these charges are not same for all ULIP, some charge lower.

Because of so many charges, the residual investment of any best ULIP insurance policy is not enough to give considerable return even if the market is doing well. Here lies the reason for dissatisfaction of investors like you, and you now want to get out of it. You, therefore, want to take such a decision.
(Source: http://www.moneycontrol.com/news/insurance/should-you-continue-to-have-faithyour-ulip-policy-_954762.html)


Monday 1 June 2015

Customers now understand ULIP’s value proposition better

With the bulls continuing to rule Dalal Street and stock market indices hitting record highs every other day, unit-linked insurance plans (ULIPs) are making a comeback in a big way.
Are there any indications to show that ULIPs have made a strong comeback?
The growing popularity of ULIPs is due to customers understanding the value proposition offered, juxtaposed with the overall positive economic sentiment. In our case, 96 per cent of our ULIP funds have outperformed their respective benchmarks, since inception.
What is the current mix between ULIPs and traditional products for I-Pru? How was the mix in 2007-08?
The new ULIPs are cost-effective as charges have been reduced. Given the prevailing market sentiments and an overall positive macro-economic environment, ULIPs have become popular with individuals looking for both protection and long-term savings. Our product mix has always been in favour of ULIPs, as of the first half of fiscal 2014-15 ULIPs comprised more than 80 per cent of our product mix.
Given that global and Indian stock markets are volatile, do you think ULIPs will be difficult to sell as a push product?
Firstly, ULIPs are long-term products. Volatility is an integral part of capital markets and can adversely impact returns where the investment horizon is short. However, historical evidence suggests that, over the long term volatility gets ironed out providing customers with positive returns.
The advantage of best ULIP insurance policy is that a customer can opt for paying monthly premiums to take care of the issues relating to volatility. Over a long period, say 10 years, equity as an asset class is known for giving superior returns and ULIPs are an ideal way to invest in it over a longer period of time. Therefore, customers should continue with their unit-linked plans and regularly make premium payments during the tenure of the policy.
I-Pru’s charges are on the higher side compared to similar products offered by competitors. What is your take on this?
One should always evaluate the charges over the long term since life insurance is a long-term product. More importantly, ULIPs being offered today have been completely recalibrated and the cost structures have been rationalised. IRDA has specified a cap on the reduction in yield (RIY). RIY is the measure of the gap between what the customer’s funds earn and what the customer actually gets after deduction of charges. The lower the difference, the higher is the return to customers. Our current set of products have extremely low RIYs, in fact, for some products, it’s as low as 0.9 per cent for a 20-year term.