ULIPs are back with a bang!

From being once the most sought out investment products to the most hated, ULIPs or Unit Linked insurance plans have completed a full cycle. Now with a string of reformatory measures introduced by insurance watchdog IRDA, ULIPS are trying to make a successful comeback in the financial mainstream offering policyholders the multiple advantages of investing in equity markets for wealth creation as well as offering life protection.

The high charges levied by insurance companies in the first phase of ULIPs made way for rampant mis-selling by distributors and insurance agents, and ULIPS became a “tread with caution” product. Now with the Insurance Regulatory and Development Authority capping the annualized charges of ULIPS at 2.25% for the first 10 years of holding, the second innings of ULIPs are likely to be more eventful and positive both for insurance companies and investors.

Introduction of reforms to make ULIPs more customer friendly

In its attempt to make Unit Linked insurance plans or ULIPS more transparent and customer friendly, the insurance sector watchdog IRDA issued new guidelines for ULIPs. The first major reform in the ULIP segment was introduction of a cap on charges and commissions which were not allowed to be front loaded but evenly distributed throughout the tenure of the policy. The second import reform in the new ULIP rule made by IRDA is to increase the lock in period of the ULIP policy along with a higher death benefit for the policyholder.

Impact of new ULIP Reforms

 As a result of the new ULIP reforms, all unit linked insurance plans introduced recently have been offering better avenues of growth by balancing both protective cover as well as wealth creation for the policyholder. While fundamentally ULIPs remain a long term investment product, the increase in lock in period has helped since all upfront charges get evenly distributed over the five year lock in period.

Another advantage offered by new Best ULIP Insurance Plan  compared to the pre 2010 ULIPs is the reduced cost structure effectively allowing a large chunk of the first year’s premium to be invested in the equity markets allowing the money to grow from the initial period itself. The Internal Rate of Return commonly known as IRR which amounts to returns after adjusting all the costs and expenses cannot be less than 7.75% in any case as per the new guidelines. As a result of these structural changes, Large-cap ULIPs  from various companies including Bajaj Allianz Life, TATA AIA Life, IDBI Federal Life have delivered an average return of 35 per cent in the last one year while ULIPs in the mid- and small-cap category have delivered even higher returns.

Source from : http://blog.bankbazaar.com/ulips-are-back-with-a-bang/

Select a ULIP that best suits you

At the time of initial investment you can chose which funds to go for depending on your investment objective. There are many options available to you to chose from as can be seen from the below chart.

ULIP NAV

One of the big advantages that a ULIP offers is that whatever be your specific financial objective, there is a ULIP plan which you can choose from:

Equity Funds ULIPS – These ULIPs mainly invest in Equity Stocks. The investment pattern can range from 60%-100%. The investment objective behind investing in such products is to meet long term goals like retirement planning, children’s education planning, marriage planning etc. These investments come with high risk and returns. The minimum investment horizon for such investments should be at least 5 years.

Debt Based ULIPS – Quite contrary to equity investment based ULIPs, debt based ULIPs are more safe and hence returns are very predictable. These investments are normally meant for short term goals or one can utilize this category to shift funds from Equity Funds as the goal maturity comes closer by using the Switch facility. Through switch option, one can move from Equity to Debt fund and vice-versa at any point in time

Highest NAV Guaranteed ULIPS – These are capital guarantee products that ensure that the amount you invest does not lose value and you get some upside of equity also. However it is foolish to assume that you get Sensex-linked return, with zero risk. Moreover, the highest NAV is only possible if you stay throughout the tenure of the fund. These plans pay the highest NAV achieved by fund units over a specified period of time ranging between seven and 10 years. They work on the constant proportion portfolio insurance (CPPI) model, which, while limiting downside in the event of falling stock markets, also tend to constrict gain and leverage that could be achieved through participation in rising markets. In ULIP NAV   , given the guarantee, over the policy term, a significant portion of the fund stays invested in debt market instruments. Depending on the percentage of guarantee offered, there is also usually a separate guarantee charge, which lowers the investment component. Such plans will appeal to investors with lower risk appetite who do not mind foregoing higher equity returns and paying extra charges for the sake of guarantee.

In a nutshell, it can be quite a considerable task for a novice investor to choose from the various investment options available. Hence it is always advisable to take the help of a financial advisor before committing your hard earned money.

Source from : http://lifeinsurance.bajajallianz.com/ulipedia/select-a-ulip-that-best-suits-you/

Changes in Unit Linked Insurance Policies Impact Finances Positively

IRDA has planned few major changes in the way ULIP’s would be sold to the buyers. Industry experts will give you detailed information about updated insurance policy riders. These changes will affect insurance policy benefits. Below are some important changes which could modify the way Unit Linked insurance plans work from now on:

Charges

IRDA has announced a cap on charges like surrender charges. Make sure that surrender charges cannot be more than Rs 6,000 in the first year from now on. These charges are capped at around Rs 2000 during the fourth year and in the fifth year, these charges will not applicable. Plus, the cost structure of Indian insurance policy would change which means more of policyholder’s invested amount will actually be invested so that insured get more return.

Commissions

For insurance agents, maximum limit of commission in India would be around 15 percent for first year, then 7.5 percent for second year and five percent from thereon. It would be just the same as was mentioned for traditional Indian insurance policy.

Higher Sum Assured

Now, the least sum assured in case of ULIP’s has been nearly ten times the sum assured. Remember that higher cover is always beneficial to the policyholders, more so if it is sold at an affordable rate.

Longer lock-in Periods

For ULIPs, the minimum lock-in period has been increased to five years from three years. Due to longer lock-in periods, person remains insured for a longer tenure and thus, avoids pre-mature withdrawals.

Ban on Products

IRDA has enforce a ban on ‘Highest NAV Guaranteed’ plans because people believe that it would make double within certain years of investment and investors would get the highest NAV that would double the investment in no time. But, the commissions and charges never took the NAV anywhere near to that level.

Best ULIP Insurance Plan  have become better with such changes. But, it is still advisable to select a pure term insurance for security and pick a mix of bonds, mutual funds and deposits for investments.

Source from : http://blog.policyboss.com/insurance/insurance-policy/page/2/

Better returns from new ULIPs

The insurance regulator, Irda, have given a more customer-friendly avatar to the unit-linked insurance plans, or, ULIPs. One of the major reforms in the guidelines was the introduction of cap on charges and commissions that could not be front-loaded and had to be evenly distributed throughout the policy term. Also, the regulator mandated a higher death benefit and a longer lock-in period

As a result, compared to the old Ulips, the new ones provide better avenues for wealth creation along with adequate cover. With reduced cost structure, there is more that gets invested and therefore makes a significant difference to the returns earned in the long term.

The upfront charges are now uniformly distributed over the five year lock-in period. So, a good portion of the first year premium will be invested and your money starts to grow from day one

Also, the maximum reduction in yield at maturity, that is, the difference between the gross yield and the net yield has been capped at 3% for policies whose tenure is less than or equal to 10 years, whereas, for plans whose tenure exceed 10 years, the total charges can't exceed 2.25%. This means, the IRR, or, internal rate of return cannot be less than 7.75% in any case.

The lock-in period has increased from 3 years to 5 years which ensures that these policies have long-term orientations and enjoy greater compounding benefits—higher the returns the more your earnings get re-invested.

They have also become more flexible offering different cover sizes and premium paying terms. Also, there are more fund options to cater to different risk appetites along with top-up options to invest additional premiums. A few insurers are also offering unlimited number of partial withdrawals and higher death benefit as much as up to 40 times the yearly premium.

Being essentially an insurance product, they haven't lost their core component either. A requirement of Best ULIP Insurance Policy  is minimum sum assured should now be at least ten-times the yearly premium paid ensures they are provide adequate protection as well.

Source from:http://economictimes.indiatimes.com/wealth/insurance/analysis/better-returns-from-new-ulips/articleshow/29448854.cms