Friday, 19 June 2015

How Ulip scores over others as a better investment product

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.


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