Ulip Insurance India

ULIP-Insurance

ULIP plans offer the flexibility of market linked returns on your investments and life insurance cover for you and your family. For more details:   https://www.bajajallianzlife.com/ulip/ulip.jsp

Why you should avoid the ULIP trap

This blog has seen its fair share of ULIP Products in the past and I have always been against ULIPs that charge exorbitant fees & charges from their investors as well as agents selling ULIPS just to make a fast buck. Unfortunately not many investors know about ULIPs and their fees & charges and have fell into the trap. The idea behind this article is to bring to your notice some shocking news I read in the new today as well as some suggestions for you if you are a prospective or current ULIP Investor.

ULIPs are not investment products

Agents & Sellers of ULIP Products rarely mentioned the fact that ULIP Products are primarily Insurance products. Instead they sold them as investment products. Each of these agents had one fancy work-up calculation that would hypothetically predict a 20% or 30% returns year-on-year and say that if you Invest Rs. 2 lakhs per year for 10 years you will get something like 2 crores at the end of 15 years.

ULIP Returns are linked to the Stock Market Performance

Agents & Sellers will never mention the fact that ULIPs aren't invincible. They will never tell you that your ULIP can make losses in case the market tanks. They keep lay the honey-trap so well that as an investor, you fail to realize that ULIPs can make losses and end up investing in schemes that are highly aggressive and invest almost the entire corpus in Stocks.

ULIPs aren’t the only tax saving instruments

One of the biggest selling points for Agents is the tax benefit for Investors. There are numerous other tax saving products and many of them are 100% safe and don’t have the kind of risks that ULIPs have. So, don’t get fooled if your agent is trying to convince you that these are the best tax saving options. Unfortunately they are not. There have been many articles about tax saving in this blog. 

he Fees & Charges are not explained clearly to Investors

When the Agent is selling his ULIP Product to you, he will not mention the fees & charges the Insurance Company that is providing this Ulip Plan Comparison is going to deduct from your annual premium ever year. This is because these charges form a significant chunk of the premium you pay every year. So, realistically speaking around 10% and as much as 40% of your premium goes to the agent & his company just for selling this product to you.

Even in the mathematical work-up they show you, they will not consider this chunk that goes into their pocket and their calculation will always show that 100% of your investment is considered as an investment.

Source: http://bestulipinsurancepolicy.tumblr.com/post/144449362614/why-you-should-avoid-the-ulip-trap

SHOULD YOU STICK TO YOUR ULIP OR SURRENDER IT?

Most investors in ULIPs have battled with this issue at one time or the other. In most situations, the investment has delivered below-expected returns prodding the investor to cut his/her loss by surrendering the policy and investing the amount elsewhere.

Traditionally in India, life insurance has always been looked open as an investment product. It is for this reason, despite financial planners recommending term life insurance plans, they have not become popular.

To support this mindset, ULIPs were launched to satisfy the investor needs of owning an insurance-cum-investment product. Unfortunately, the fact of the matter is that ULIPs are poor performers due to high costs and inherent under performance.

Costs and Performance

Being an integrated plan, a ULIP NAV combines insurance and investment. A part of the premium paid by the policy holder goes towards the insurance cover, while the balance is utilized for investments. As far as the latter is concerned, the money is pooled together and invested in various in equity and debt instruments in varying proportions, just the way it is done for mutual funds. The policy holder has the option of selecting the type of fund (pure debt or equity, or a blend of both).

This NAV is the value based on which the net rate of returns on ULIPs are determined. The NAV depends on the investments made and the market condition; in other words, the fund’s performance.

Being a market related instrument, the state of the market has a big impact on the performance of the fund. 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 fees are levied. The common costs are premium allocation charge, top-up allocation charge, mortality charge, fund management costs, policy administration charge, and switching costs and surrender costs.

Besides, the surrender value is calculated as fund value minus surrender charges (fund value = total number of units under the policy x NAV of the chosen fund).

However, these charges differ amongst ULIPs.

Due to these costs, the residual investment of any ULIP is not sufficient to give considerable return even if the market is doing well.

What should you do?

Avoid it

If you have never invested in ULIPs, don’t.

If you already have, take a close look at your current investment. Based on the criteria below, you may choose to surrender or not.

Costs

Some ULIPs have variable charges, high initially and then lower. In case your ULIP is one and it has been years since you invested and the maturity date is not too far off, stay invested.

If your ULIP has got ongoing regular charges which will eat your premium and fund value, then you could surrender the policy.

Surrender charges

It could be that the surrender charges are too high if you surrender the policy right away. If you wait for some more time, they would come down. Once the surrender charges get low or are nil, then go ahead.

If there is no surrender charge, or it is low, then you can go ahead.

Performance

If your ULIP is performing well post expenses, then there is no need to exit. If your ULIP is not performing well compared to similar investments such as mutual funds, then you could consider surrendering.

Also look at other financial instruments such as Gold ETFs, PPF and bank fixed deposits to see whether they are giving higher returns compared to what your ULIP has given. If yes, then maybe it is time to cut your loss and get out.

Other

If your health condition has deteriorated after taking the policy, it is best not to surrender. If you opt for a fresh life cover, the company may decline the policy based on the recently developed health issues.

[Source: http://bestulipinsurancepolicy.tumblr.com/post/144187168589/should-you-stick-to-your-ulip-or-surrender-it]

Unit Linked Insurance Plan (ULIP) - An Introduction

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 your units 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 also changed for better. In 2010 the IRDAI issued new guidelines for ULIPs in order to improve the returns for investors by reducing charges and to ensure that the new product is sold and bought as a long-term protection and savings tool. For last few years the demand for traditional insurance plans has considerably gone up overshadowing the ULIPs. Let me bring back the focus on what a new ULIP is all about and what’s in it for you as a customer.

What makes ULIP a better investment product?

Avoid everyday hassle of managing stocks: Invest in ULIP which provides you

Expert fund management

Multiple fund options – You can choose the type of fund in which premiums will be invested.

Different Investment strategies like opportunist and balanced approach

Adapt your portfolio, don’t toggle it: ULIPs allow you to shift your money from one fund to another without disturbing your long term financial plan

Fund Switching: Shift your funds from equity funds to debt funds or vice-versa

Premium Redirection: Re-direct your future premiums to any fund of your choice while keeping your existing fund composition intact.

Partial Withdrawal: ULIP provide flexibility to its policyholders to “partially” withdraw some amount of money from his own accumulated Fund Value before the policy tenure is over.

What are the unique features that it offers to customers?

Investment and Insurance cover

It’s a two-in-one plan in terms of giving an individual the twin benefits of life insurance and investment.

Multiple investment options

You can invest in multiple fund options based on your life stage needs and risk profile.

Transparency and tax benefits

You know what is the amount you are paying for the various benefits and you will also get tax benefits under section 80 C & 10(10D) as per prevailing tax laws.

What should one keep in mind while investing in ULIP?

Applicable charges

Payment on premature surrender

Investment fund options

Features and benefits

Limitations and exclusions

Lapsing and its consequences

Other disclosures

Busting the myths

ULIPs are expensive: In simple words, overall charges cannot exceed the prescribed limit set by the regulator -the net reduction in yield cannot be more than 3% 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%. This capping of charges ensures a reasonable value proposition for the customers.

ULIPS offer low returns: There are several factors that enable the investor to get a good return:

Invest for long terms: ULIP offered by Life Insurance companies are the only long term avenues for investing in disciplined manner, along with valuable life cover.

Your choice for funds and judicious switching, redirection of funds/premiums will ensure that the fund growth is healthy.

Source: http://bestulipinsurancepolicy.tumblr.com/post/144141727629/unit-linked-insurance-plan-ulip-an

Unit Linked Life Insurance Plans (ULIP)

In Unit linked Insurance Plan (ULIP), part of the amount paid by the policy holder goes towards providing the insurance cover and the balance is invested in venues of investment as desired by the policy holder. ULIP plans are most suitable for getting life insurance coverage and also growing your money.

Unit Linked Life Insurance Plans:

Unit Linked Life Insurance Plans are one of the best plans if you would like to secure a life cover as well increase your wealth at the same time. Presenting dual benefits to the policyholders, these insurance plans offer a life cover and assist in long term wealth creation.

These plans are way structured way to avail market linked returns on your investments as well to get the benefits of the protection plans. In these, a portion of premium paid by the insurer is invested in bonds or stocks, the returns of which, are provided at the time of maturity. The other part is used for offering a life cover to him/her.

Types of Unit Linked Insurance Plans:

Depending on their usability and the area they cover, ULIPs can be categorized in the following types:

ULIP for Retirement: In retirement ULIPs, the policy-holder pays the premium during his/her working years, for a decided period of time. This builds a suitable amount of corpus, which, on maturity, is provided in annuities.

ULIPs for Wealth Creation: This ULIP is primarily to increase your wealth over a period of time. With the returns on the investment made, these plans assist policy-holder in handling the constant inflation.

ULIPs for Children Education: These ULIPs provide the much needed financial support to the policy-holder, catering to the educational requirement of his/her children. It helps in taking care of the expenses related to child’s higher education and marriages.

ULIPs for Health Solutions: These plans offer financial support to the policy-holder to meet his/her medical expenses. Rising costs for addressing health issues make it even more essential to opt for such plans.

Why ULIPs:

Transparency: ULIPs offer a transparent format with its structures and charges clearly laid out, allowing the insurer to make an informed decision.

Flexibility: Under these insurance plans, policyholder can invest in differing asset classes such as equity, money market and debt. One also has the freedom to switch between these kinds of assets. It also offers premium flexibility.

Additional Investment: It offers the insurer with the option to invest additional amount, referred as ‘top-up’ at any preferred time during the tenure. This can be done at minimal charges and guarantees various benefits.

Life Insurance Cover: Insurer gets the freedom to select the extent of cover he/she wants to have. In most cases, the minimum life insurance cover that one can get is 10 times the annual premium. However, the policyholder, depending on the policies of the company, can also get a cover of up to 100 times or even more of the annual premium.

Liquidity: One can also partially withdraw money, which is mostly free of cost, in case of any unpredictable event.

Tax Benefits: ULIPs offer dual tax benefits under the sections 80C and 10 (10 D). As per current tax laws, the maturity benefits of ULIPs are tax free.

How to choose ULIPs:

Decide your insurance objectives and then select the plan which fulfill them

Compare: Each ULIP NAV has its exclusive set of features and benefits. Do compare various plans online and then opt for the one that is most suitable.

Know the varying charges such as initial charges, fund management charges, fixed administrative charges and mortality charges, which have been put on the product over its tenure.

Give utmost importance to your investment goals and then consider benefits of the policy

Evaluate your risk profile and financial stability before finalizing a certain plan. For instance, if your risk profile is high, it is suggested to invest higher in equities.

The required amount of Investment:

The amount of investment depends on various factors such as the policy-holder’s risk appetite; investment goals and his/her stipulated tenure of investment.

Things to remember:

ULIP Charges: Be aware of the various charges which are levied on the ULIPs. There are various sub classes in which the ULIP charges can be categorized as Premium Allocation charges, Policy Administrative charges, Surrender charges, Mortality charges, Fund Management charges, Fund Switching charge and the Discontinuance charges.

Source: http://bestulipinsurancepolicy.tumblr.com/post/143888679804/unit-linked-life-insurance-plans-ulip

Highest NAV guarantee plans likely to make an exit from the market

As per Insurance Regulatory and Development Authority (IRDA) Unit-Linked Insurance Plan (ULIP) offered by life insurers which promises that customer will get guaranteed highest Net Asset Value (NAV) return that the policy has achieved during the tenure of the policy have caused confusion among the customers hence it should be discontinued.

It is different from other highest NAV guaranteed plans as it guarantees only 80% of the NAV take for instance if the NAV of the plan rises to Rs 20 from Rs 10 than only Rs 16 is guaranteed.

As per IRDA product is leading to miscommunication as customers believes that return will be high as it guarantees highest NAV return but return are even low than pure equity fund. But insurers say that returns are not poor but are based on market conditions.

Highest NAV guaranteed schemes guarantees returns based on highest NAV that the policy has achieved during the term of the policy. This product is a close ended scheme sold by companies for limited period from 3-6 months. This product has lock-in period of 7-10 years.

Highest ULIP NAV guarantee plans typically invest its fund in debt and equities; as and in order to protect the guarantee in the case of falling equity market insurers move funds from equities to debt. Hence it eventually becomes a debt product and customers are not able to get benefit of the rising equity market.

Source: http://bestulipinsurancepolicy.tumblr.com/post/143781602239/highest-nav-guarantee-plans-likely-to-make-an-exit

What Are the Different Types Of ULIPs

Types of ULIPs

Depending on the purpose of investment ULIPS can be divided into the following types:

ULIPs for Retirement Planning: These plans accumulate a portion of your savings over a period of time and the corpus amount is made available to the policyholder at maturity for purchasing an immediate annuity plan.

ULIPs for Child Education: These plans aim at providing financial support for expenses related to children like education, marriage etc.

ULIPs for Wealth Creation: There are many ULIP’s with the objective of accumulating wealth over time which will help the policyholder beat the rising costs by offering return on investment.

ULIPs for Health Solutions: Keeping in mind the rising medical expenses, these plans allow the policyholder to claim for health related expenses of any kind. Some plans may also fund your future health insurance charges.

Most insurers offer a wide range of funds to suit one’s insurance and investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund

ULIPs v/s Mutual Funds

Let’s see how ULIPs fare in comparison with Mutual Funds in various attributes:

1. Complexity

Mutual Funds are easy to understand products, especially equity mutual funds. Whereas, ULIPs are slightly complex as they are structured products. However, the recent regulatory changes have to a great extent decreased the ambiguity from these products and hence they are easier to understand now.

2. Cover Amount (Sum Assured)

Mutual funds do not have any life cover built into them so there is no concept of life cover (sum assured) out here. Life cover is the money paid to the policyholder’s family if he/she dies. In ULIPs, on death, either the higher of the cover amount or the fund value of the ULIP is paid out, or both the fund value and cover amount is paid out – this depends on what type of ULIP you have.

3. Costs

There are no entry loads in a MF. In fact, this is one of the biggest differences between ULIPs and mutual funds. The only charge that investors incur is a recurring charge on the NAV that a MF is subjected to depending on its type and corpus. Compare that with ULIPs, there are many charges, some of which get deducted from the premium and others from the fund value. This is precisely why ULIPs are considered expensive in the beginning as most of the charges hit you in the initial few years. This is also the reasons why it is advised to stick to ULIPs for a longer term, preferably for a minimum of 10 years before you begin to see some good returns.

Mutual funds are cheaper, but only in the short run. Over a long period ULIPs may give you a better return over Mutual funds as the fund management charges are lower than mutual funds.

4. Lock-in Period

Lock-in period is the minimum period for which an investor needs to stay invested in a fund/plan without attracting any penalty on complete withdrawal (i.e. surrender). When you invest in ULIPs, your money is locked in for 5 years, so this directly affects your ability to surrender or pull out the money in case of an emergency; however, ULIPs give you flexibility to partially withdraw from the fund as and when needed.

In mutual funds, there is no lock-in except when you buy tax saving mutual funds also called Equity Linked Saving Schemes (ELSS). These get locked in for 3 years so money is not available to you should you need it. But in all the other types of MFs, you can withdraw your money after a year without any penalty. However in the case of ULIPs the idea is to get life cover along with the returns and hence the question of withdrawing before 5 years ideally should not arise.

Even though Mutual Funds offer a lot of simplicity and flexibility in terms of investment options and withdrawal, they simply cannot provide the risk covering capabilities of a ULIP. For long term investors ULIP can be the best available investment avenue. However it is the investor who needs to choose what is best for him depending on his/her financial goals.

The investment space is filled with options and you should look at them, identify your financial needs and then choose the right product.

Source: http://bestulipinsurancepolicy.tumblr.com/post/143732141304/what-are-the-different-types-of-ulips