Should you go for ULIP?

Insurance, apart from being an instrument of financial security for the future of your loved ones, is also considered as a good option for investment. Insurance, unlike stocks, is a safe form of investment. While you might be wary about investing in shares directly, there are options that let you invest in the stock market while simultaneously providing the security of an insurance cover. Unit-Linked Insurance Plans or ULIPs are exactly what you’re looking for.

When you buy ULIP plans, a portion of your money is invested across assets like stocks, bonds, and so on, similar to investing in mutual funds. The remaining money is used to buy you a life cover, valid for a certain period of time. This way, you earn a cool return on your money and remain insured at the same time.

What is the concept? Best Ulip Insurance Policy is simply a combination of insurance and investment. You buy a policy and pay a premium like you do for your other insurance policies, however part of your premium is as insurance premium(for the cover) while remaining is invested in various equity and debt schemes.(like mutual fund investments).

Investment part: As an investor you have the choice of selecting what type of fund you need to invest (debt or equity or a mix of both). This is same as Mutual Fund investment (if you have done MF investments earlier you would know). So, you will have units allotted and you can check its value based on current NAV - if they are making profits or running in losses. NAV - Net Asset Value - which you could say in simple terms net rate of return on current date. This varies from one ULIP to another and is purely based on market conditions.

Which almost all financial players forayed into ULIP business - which also saturated the market and ULIP lost its sheen, very soon. Also, investors learnt all the tips and tricks of this plan, over the time and turned their back on it.

Which almost all financial players forayed into ULIP business - which also saturated the market and ULIP lost its sheen, very soon. Also, investors learnt all the tips and tricks of this plan, over the time and turned their back on it.

When and why you need it, because based on your requirements - there are various other options in the market for investment. For example:

A.if you need pure insurance - best is to go for term insurance, where you can get a high life cover for minimal premium.

B.if you need pure investment - do not go for ULIP, invest into other high return products.

C.Decide when you need returns (This is called Investment Horizon in financial terms), early? For marriage? For kids’ education, for retirement? Based on that select a product.

D. Find out how much of risk can you take? (This is called risk appetite in financial terms)- are you 23 and just started working - which may mean, you can take bigger risks and invest into something, which even if it fails, you would not be hurt, financially so much, are you 45 and now thinking of investing - plans/policies changes accordingly.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/30/ritikashah11998-37/

ULIP

ULIP the best investment program

Top up premium in ULIP is the amount that the plan owner spends in a ULIP over and above the normal premium. The key purpose is to benefit from the lower Premium Allocation Cost that may be as little as 1% as opposed to individuals levied about the regular top quality which presently is as high as 25% in the 1st year and decreases to 3-5% consequently.

This benefits of UILPs comes from the fact that top ups might be made whenever unlike normal rates that have to be paid out at fixed durations. For instance, the current economic depression, when the market segments had decreased almost 70 %, was a great time to invest in trading stocks and also everyone sitting on a extra could do so through top ups.

Top ups also relish tax advantages beneath section 80 C of the Income Tax Act giving exemption up to a utmost of Rs. 100,000 p.a. committed to life insurance policies.

Nevertheless, the entire amount of top up expense is generally allowable till 25% of the regular premium paid up to the time of trading. The minimal quantity required will vary for each insurance provider, but is usually Rs 2000. Also, many insurance companies allow the option of top ups only after a few payments of the normal premium have been made with no payments are impending or have been defaulted.

Under current practices the whole top up money is used for investment purpose without any part percentage towards mortality cover, but this is set to alter according to new IRDA guidelines. Top up premiums will lose a few of their sheen after the new directives on insurance policy by IRDA come into force through.

So far top up premiums happen to be an excellent selling point for ULIP. With the intro of recent guidelines, the insurance coverage sector will become more transparent and also accountable to the insured, which usually in effect will motivate more and more people to opt for ulip investment.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/28/ritikashah11998-36/

All about Unit Linked Insurance Plans

What are Unit Linked Insurance Plans?

A Unit Linked Insurance Plan is an insurance plan that offers you a life cover and is also an investment.

How does a ULIP work?

In a Unit Linked Insurance Plan, part of the premium that you pay goes towards mortality charges, similar to regular insurance policies. Here’s how it is different. The remainder of the premium is invested for you by the insurance company.

Personalized Investments

You can choose the investment units and the distribution of funds to match your needs. Don’t fancy high-risk investments? Take a deep breath. You can vary the levels of risk for your investments.

Demystifying Unit Linked Insurance Plans

We’ll banish some popular myths about Unit Linked Insurance Plans for you.

Unit Linked Insurance Plans are costly in comparison to other investment products.

Unit Linked Insurance Plans were costly some years ago because of the high premium and fund management charges. In recent years, ULIPs have seen several changes with respect to the charges and fund management fees.  and there has been a decrease in costs. You can get Unit Linked Insurance Plans that are competitively priced.

ULIPs are invested only in equity markets. They are risky.

Don’t be so hasty to dismiss Unit Linked Insurance Plans. With a ULIP you can decide the level of risk for your investments. There are different types of funds that you can choose from. You can also change funds to suit your evolving lifestyle.

Unit Linked Insurance Plans offer extraordinary returns.

Remember, a ULIP is not only an investment product. A ULIP Plans gives you an insurance as well as investment options. A part of the premium is allocated to the life cover and other fees. The remaining premium amount is invested.

Life cover decreases with market volatility.

Many investors have the wrong idea that, because ULIPs are linked to the equity market, the sum assured amount would decrease if the market dips. Not true. Despite market volatility, your life cover will remain unaffected. In case of the policyholder’s demise, a ULIP pays the entire life cover or the fund value, whichever is higher.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/27/ritikashah11998-35/

Ulip Plan

All about ULIP

Should I invest in ULIPs?

UNIT Linked Insurance Plans (ULIPs) are policies that club insurance with investment.

Besides getting your basic insurance cover, ULIPs offer between four and six options when it comes to choosing the investment mix.

These range from funds, which invest in 100 per cent equity to those that invest in 100 per cent debt securities.

Wealth offers pointers on ULIPs to help you make a well-informed decision before investing in this product.

Higher charges

ULIPs have something called the ‘premium allocation charge’. This means, the company charges a percentage of the premium towards the premium received. For instance, if you are paying a premium of Rs 45,000 per annum, you are charged a premium allocation charge of approximately 15 to 71 per cent on this amount. The net premium, after deducting this charge, gets invested.

This charge, usually, depends on the Best Ulip Insurance plan chosen. and remember: your per annum return is calculated on the money invested and not on the premium paid.

A significant proportion of this charge is passed onto an insurance agent as commission. From the third year onwards, most ULIPs have a premium allocation charge anywhere from two to five per cent.

Choosing the best ULIP

When it comes to mutual funds, you can find the best performing schemes through research.

But this is not possible with ULIPs because each plan will differ in terms of the expenses you need to pay upfront. This means that you have to go with what an agent tells you.

ULIPs: When its okay to switch

WE are a cautious species. We pray before every important event, we look at auspicious factors when we name our children and we consider broken mirrors a bad sign. It’s no wonder then that when we make a killing in the stock market, we first think about how best to preserve it.

People book profits or switch to a safer option in a bid to play safe. But while that makes sense for those dealing in shares or with mutual funds, does it make sense for those having equity unit linked insurance policies (ULIP)? ULIPs allow you to switch from equity fund option to debt, usually without any fees. But there is a key difference between ULIPs and other stock market investments. ULIPs are a combination of insurance and investment. Since it is your protection cover that you would be tampering with, your decision to switch needs to be well thought out before you exercise it.

ULIP is a combination of insurance and investment. Of the total premiums paid, some of the money is set aside for the insurance cover and the rest is invested in a fund.

This involves the cost of insurance or life cover that is allocated for the plan. Age, health of the policy holder, and the amount specified for coverage determines this charge. The basis of this charge depends on the type of ULIP. That is, this charge is initially deducted from the entire sum assured. At the final stage, it is charged on the difference between the sum assured and the fund value. In some ULIPS the mortality charge is levied on the sum assured for the whole term.

Should I close the policy?

The cost-structure in ULIPs varies significantly, not only across different insurance companies, but also across different ULIPs from the same insurance company.

So, each policyholder will have to work out the final exit/retain strategy based on his/her specific policy terms. However, there are three factors to be considered:

— Performance

— Entry Charges or allocation charges

— Annual Costs or fund management charges

The focus, here, is on equity-based ULIPs. the basic idea is to check whether it is better to continue paying premiums or instead start investing.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/25/all-about-ulip/

ULIPs : A good investment?

Benefits of ULIPs

Meanwhile, I was recently evaluating Unit Linked Insurance Plans (ULIPs) – the idea here is that you put in your money and it “grows” with time. So you also have life cover (i.e. your family gets money if you die) and money also grows at the same time. You get “units” like in mutual funds, and the value of these units grows because the company invests it for you. You also get a tax benefit under section 80C.

Unit Linked Plans offer unique opportunity to combine protection with investments. Some special features of Unit Linked Life Insurance Policies (ULIPs) are:

Provides flexibility in investments

ULIPs offer a complete selection of high, medium and low risk investment options under the same policy. You can choose an appropriate policy according to your risk taking appetite, coupled with the opportunity to switch between fund options without any additional expense for specified number of switches. ULIPs provide the flexibility to choose the sum assured and investment ratio in the annual targeted premium. It also offers the flexibility of one time increase in investment portfolio, through top-ups to avail investment opportunity offered by external environment or own income flows.

Transparency

The charge structure, value of investment and expected IRR based on 6% and 10% rate of returns, for the complete tenure of the policy are shared with you before you buy a product. Similarly, the annual account statement, quarterly investment portfolio and daily NAV reporting, ensures that you are aware of the status of your investment portfolio at all times. Most companies publish latest ULIP NAV on their respective websites on a daily basis.

Liquidity

To cope with unforeseen circumstances, ULIPs offer the benefit of partial withdrawal; wherein after 5 years you can withdraw funds from our Unit Linked account, retaining only the stipulated minimum amount.

Disciplined and regular savings

ULIPs help you inculcate a regular saving habit. Also, the average unit costs tend to be lower than one time investment.

Multiple benefits bundled in one product

ULIP is an outstanding solution for risk cover, long term investments with the benefit of various investment opportunities, coupled with tax benefits.

Spread of risk

ULIPS are ideal for those investors who wish to avail the benefit of market linked growth without actually participating in the stock market, with the added benefit of risk-cover.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/23/ritikashah11998-34/

Ulip Plan

ULIPS - To invest or not to?

The economy was booming. India was termed as the next big thing. Real estate peaked. Subprime crisis was at its nascent stage and i-bankers brushed it aside citing bloated 'strong' fundamentals. Signs that the economy was heating up were ignored by investors. Everyone wanted to ride the boom wave and make lots of money. In the middle of all this, an interesting phenomenon was happening in the Indian insurance circle. Its termed as ULIPS (Unit Linked Insurance Plan). Wiki defines it as "A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets" It was gaining popularity in this period as liquidity was too high, FIIs were pumping in lots of money into a bubble that would eventually burst a year later. The idea of ULIPs in India brings back memories of UTI launching a mutual fund with tax cover in 1960s. UTI played around with double benefit of Insurance and Returns. It crashed big time once liberalization came into force and others took over. The rest is history

I remember every second friend/acquaintance/relative doubled up as an agent selling ULIPs. I used to get nonstop calls from them promoting the promoting the product as 'never like before' / 'best of both worlds' et al. What was not disclosed is the sky-rocketing charges which would be hidden from you. Let’s dissect and see what this product is all about and why one should look at better options.

Every investment of a prudent investor should always be tied to an objective. Eg. "To generate wealth for my children's' education". ULIPS are meant to be an Insurance product that invests in equities. This violates the very basic principle of investing that "Insurance and wealth generation cannot and should not be mixed". Each objective should have a specific instrument that serves only that purpose.  Insurance is something that should be taken considering the well being of the near and dear after ones' gone and not for the attractive returns. It should not be a hasty decision purely based on investment myopia or some mis-selling pitches. As ULIPs would be the product that would be pushed the most by agents (for higher commissions), be well informed about the instrument and its features

Be wary of the following things before deciding on ULIPs

1. Your agent says that you can exit the product n 3 years and stop all your premium payments and still enjoy the Insurance cover.

Truth- Though it’s true that the policy would be in force, be ready to see your capital erode in lieu of mortality charges/admin charges. Once the corpus is eroded by these charges, only then the policy ceases to exist. You won’t be even able to recover your capital. Also your agent would insist you pay your premiums once a year. Though this doesn’t constitute mis-selling, it increases risk of reduced persistency as paying bulk once a year maybe taxing for the investor that he may stop paying premium. The agent would get his commission anyway :)

2. Promise of Guaranteed returns - Your agent may say that the product returns are guaranteed.

3. Lack of history- As we know, ULIPs are fairly new in the market. There is no proven track.

4. Best Ulip Insurance plan work best only when invested in a time period of 15 years and above. Don’t try to short any ULIPs and expect sky high returns.

5. Be very clear on the admin and other charges. ULIPs typically are front loaded, in the sense that most of charges are upfront. For the first year, the typical allocation would be 50%. Be ready to face it! Read the offer document carefully. Typical premiums break up looks like the one below

This implies that ULIPs may lose its tax shield. Even if it comes under the umbrella of 80C, the sum assured should be atleast 20 times the premium paid, which sadly is not the case with many ULIPs.The typical ratio for ULIPs is 1:5

As we speak, ULIPs today contribute close to 80% of premia in life Insurance sales. Though it’s an encouraging sign that investors look at equity as an investment avenue, it’s disturbing to see the lack to investment discipline that is the heart of investing.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/21/ritikashah11998-33/

Unraveling the ULIPs: 5 Secrets You Should Know About

Since their introduction in the Indian market a few years back, unit-linked insurance policies (Ulips) have become a lot popular, but for all the wrong reasons. Here, I am not commenting on whether Ulips are good or bad as an insurance/investment product but trying to highlight the fact that among all the financial products Ulips are the most mis-sold (hawked as short term investment and tax saving product). Why? Because we are too pre-occupied either with earning more money or blowing away our hard earned money -- buying that newly introduced iPhone -- that there is hardly any time left for managing the money already earned (which is left at the mercy of the insurance agents or so called financial advisors).

In addition to rampant mis-selling, unit-linked plans are the most complex financial product. So let’s make an attempt to understand some of the unique but little known facts associated with them.

But, first the basics. Ulips are similar to traditional insurance products like money back and endowment policies because they also offer insurance-cum-investment but with one major difference. Ulips offer you market linked investing as opposed to assured returns offered by traditional policies. Put simply, in case of money back and endowment plans, investment risk lies with insurance company whereas in case of Ulips, insured have to bear the investment risk. There are lot many other aspects also (like transparency, liquidity, complexity and control) where Ulips differ from conventional insurance products. Besides, there are many hidden features which are unique to Ulips.

Here is a list of five such closely guarded secrets of ULIPs:

1. Minimum Premium

If you want to invest more than the minimum premium required for a particular sum assured, go for top-ups (additional investment over and above the regular premium) where the allocation charges are usually 1-2 per cent and thus work out to be cost-effective. Furthermore, unlike regular premium, there is no commitment on your part to pay it on regular basis.

So, what’s the way out? You should still go for the minimum premium only and if you would like to invest more, put up to 25% of your regular premium in Ulip as top-up and go for mutual funds for any amount over and above that.

Believe me, it can make a huge difference to your insurance costs and consequently to your returns and no insurance advisor is ever going to tell you about this well-kept secret because your loss is a direct gain to the agent and the insurance company.

2. Asset Reallocation Tool

ULIPs not only offer you to choose your equity exposure (from 0% to 100%) but through the option of fund switches also provide you the flexibility to shift between various fund options as per your convenience.

Thus, it is an ideal instrument to manage your asset allocation between debt and equity. Unlike mutual funds Ulips allow you to do asset reallocation at a click of button with no hassles, minimal/no cost and without any tax implications. Having selected an investment option, say 100% equity, you always have an option to shift to various other plans, say with 50% equity or 100% debt or any other combination.

In my opinion, this flexibility in altering the asset allocation is the best benefit ULIPs offer over mutual funds. Therefore, make the most of this tool but be wary of timing the markets.

3. Expense Ratio/IRR

The best way to compare ULIPs is to look at their expense ratio. It is arrived at by deducting IRR (also called net yield) from gross returns.

Gross Yield/Returns -------------10%

Less Actual returns / IRR ---------7%

Expense Ratio ---------------------3%

4. Type I vs Type II ULIPs

There are basically two types of ULIP plans. Type-I plans pays the higher of the sum assured and fund value to the nominees upon the death of life assured whereas in case of Type II plans both the sum assured and fund value are paid.

It is always preferable to opt for Type 2 policies which are more protection (the core aim of insurance) oriented -- although a bit expensive then Type-I policies due to high mortality charges -- because in case of Type-I policies risk exposure/sum at risk (sum assured minus fund value) keeps on decreasing in the later years as your fund value increases which amounts to having inadequate insurance coverage.

5. Termination/Surrender before 5 years

Like all insurance products, ULIP NAV are long term instruments and therefore it is better not to make an early exit.

As stated earlier, expense ratio is too high (in other words, IRR/net yield is too low) in the initial years. Furthermore, exit costs called surrender charges are applicable in case of early exits. Thus, you should let the ULIPs run their full term unless you are in financial crises.

Although most ULIPs allow full fund value if you surrender it any time after five or six years, it is better not to exit even after the 5 years and to let them run for at least 10 years because longer the policy runs, better the returns.

Furthermore, most ULIPs allow partial withdrawal any time after 3 to 5 years. But it is better not to opt for it unless you are hard pressed for funds.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/20/ritikashah11998-32/

Life Insurance – Look at the BIG Picture!

Here’s a short case study basis the experiences I have had while talking to clients about their thoughts on Life Insurance.

To begin with, let me explain these two terms I have generously used in the article:

ULIP: A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that gives you the benefits of both life insurance and market investment under a single integrated plan.

Term Insurance: Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid to the insured

Case 1: ULIP Boom and Bust

None of us can forget the era when the so called ULIP Boom happened. It was at its peak during the year 2010.

In this period life insurance agents had a field day making promises to clients like- “the money that they invest would automatically get doubled in 5 years” , “all you need to do is pay your premium for 5 years and for the rest of the policy term, the insurance company will pay the remaining amount and still give you huge returns” – the false promises continued so on and so forth.

Was it the fault of the life insurance agent or the customer? I would say both.

It is shocking to note that the customer, who probably haggles with every other vendor in the neighborhood to give him discounts on everyday goods,  never asked any questions when buying a very important thing like Life Insurance and blindly believed whatever the insurance agent told them.

He should have at least asked basic questions like-

Whether they were surely going to get said amount after 5 years, could the agent show the proof?

What charges would be levied on this investment?

Does the plan really guaranteed returns or not?

ULIPs sold like hot cakes in this period, but unfortunately customers who were sold with the dreams of getting double money and other false claims, were hugely disappointed and felt cheated.

Result : Customers stopped believing in ULIPs.

Now days, with the fall in customer’s positive sentiments for ULIPs, life insurance companies have tilted the scale towards Term Insurance Plans.

Case 2: Life Insurance Companies Focus on Term Insurance

A new insurance agent presents a good“Term Insurance Plan” to the same customer who earlier bought ULIPs; but things have changed now.

Customers, who had blindly chosen Ulip Insurance India products without a single question, are now ready with their list of questions. Alas! Only if they understood life insurance and asked pertinent questions.

Instead of asking questions relevant to Term Insurance, the customers asks questions like –

How will I be benefited if the money is received after my death?

If I survive will I get anything?

We often forget that the real meaning of the word “life insurance” is to build an emergency fund for one’s family and support them in case one meets with any unforeseen mishap in life.  It is surprising to note that not only people misunderstand term life insurance but also are reluctant to pay relatively lesser amounts of premium for higher life coverage when compared to other market linked insurance schemes.

Source: Here’s a short case study basis the experiences I have had while talking to clients about their thoughts on Life Insurance.

To begin with, let me explain these two terms I have generously used in the article:

ULIP: A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that gives you the benefits of both life insurance and market investment under a single integrated plan.

Term Insurance: Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid to the insured

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/15/ritikashah11998-31/

Most important questions you should ask a ULIP agent

When an agent approaches you with ULIP product; before filling up forms, he should be explaining you what is a ULIP and how it works! You should ask him the following 6 questions to make sure you know what you are about to buy!

1. What are the returns offered by this ULIP?

As per the rules of IRDA, an agent should explain you the workings of ULIP with an assumptive illustration earning 6-10% returns. However, if he claims that in the long term the policy is expected to give more than 10% then this information is not misleading. But if he claims that the policy ‘WILL’ earn 18-20% or even Million% returns, you need to stay away from such agents!

2. What are the Charges applicable in this ULIP?

He should give you detailed Information on all the charges that are/will be applicable to ULIP. The important charge you need to know is Premium Allocation Charges. If he doesn’t disclose any Charge that is applicable then I am sure it’s not because of his dishonesty and no other reason. Ask him the company brochure mentioning the exact charges where all the charges are listed and explained in detail.

3. How does it suit my Risk Profile and fit in my requirement?

Before suggesting you the ULIP the agent should have asked you all the details about your Cash flow (Salary, Expenses) and your future goals with ULIP investment should be addressed. He should also try to understand if you can take the risks associated with the ULIP. If he does not ask you these things then you ask him back why he has not asked you these questions. Get the word out of his throat!

4. How is it better than other ULIPS?

Ask him what is unique with the ULIPs he is recommending to you and make sure he does start all non-sense of Sec 80C benefit and high returns and all… Every ULIP has it! Ask him what are the special features with ULIP and how do they address your requirements. If he claims that his company ULIP is the best and no other ULIP can match it then ask him for references if any states that. Just a plain claim from agents will not do. An agent must have enough knowledge to make you understand how to make best use of your ULIPS.

5. How does it score over Term Insurance + Mutual funds combination?

Best Ulip Insurance plan  are combination of Insurance and Investment produce, There is no point in taking it, if it can’t perform better than Term Insurance + Mutual funds SIP. Switch benefits in ULIPS are the main benefit in ULIPS. He must put pressure on that point, If not he is himself not aware of it. Refrain from taking the policy if he starts claiming that returns from ULIPS will be much higher than Mutual funds.

6. What was the performance during Market Crash ?

Agents generally try to put up rosy picture and hence refrain from disclosing the funds performance in bad markets. If the fund has done bad, that is acceptable. Its investor responsibility to take care of switching and asset allocation. So there is nothing wrong in performing bad in bad markets. Agents will first try to avoid the confrontation, but finally may tell you that they did bad and returns are very low. Ask him for exact number in return and try to find out how other ULIPS performed.

My personal Experiences

I have never come across any ULIP agent who has tried to sell the product in a professional manner. This has its own reasons like meeting Sales Target pressure or poor training to Agents. Anyways, it’s not acceptable and cannot be accepted. For so many years, Mis-selling is happening in India.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/13/ritikashah11998-30/

ULIP - United Link Process

Unit Linked Insurance Plan (ULIP)

Unit linked insurance plan (ULIP) is a mix product which provides both insurance and investment option. It provides life insurance and also invests your money into various market-linked assets for meeting long-term goals such as funding children’s education and marriage, for building one’s own home and saving for own retirement, etc.

Ulips have become a long-term investment option now. The new guidelines introduced in 2010 have increased the lock-in period from 3 years to 5 years and also make it mandatory to regularly pay premium till the end of the chosen policy term, if one wants to continue till maturity.

The Insurance Regulatory and Development Authority of India (IRDAI) has mandated all life insurance companies to help the buyer to take a look at how the premium of ULIP would get invested, how and what charges would be deducted from this premium and how the investment will grow over the years. This whole process is known as ‘Benefit Illustration’ (BI).

Now, at the time of buying an ULIP, you must ask the sales person to generate Benefit Illustration according to your age, planned premium and term.

The first column of this illustration would preferably show the premium amount while the next column would show the ‘premium allocation charge’. Further column shows the remaining amount available for investment. Nearly 5 to 8 different fund options are available for investing with varying equity and debt exposure levels. Other columns shows various other charges, such as policy administration charge, fund management charge, mortality charge and service tax, that get deducted from the premium. The last three columns are important showing the fund value, surrender value and death benefit at the end of each year.

The Net Yield can be compared across Ulip Plan Comparison for a better comparison. The higher the Ulip charges are, the lower will be the Net Yield.Net Yield is the rate of return on investment after subtracting all expenses, such as policy administration charge, fund management charge, mortality charge and service tax.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/09/ritikashah11998-29/

Ulip - United link Process

TAX BENEFITS WITH ULIPS

Unit Linked Insurance Plans or ULIPs are a unique investment product. Along with investment in ‘units’, it also comes with life insurance i.e. it provides life cover to the person taking the policy. ULIPs offer tax benefits at the time of investment as well as on maturity.

Tax Benefit on investment – money invested in ULIP can be claimed as a deduction under section 80C (life insurance) or 80CCC (pension). A maximum of Rs 1, 50,000 is allowed under section 80C/ 80CCC. Deduction is available on life insurance ULIPS under Section 80C, up to 10% of the sum assured or annual premium whichever is lower subject to a ceiling of Rs. 1,50,000. Deduction towards premium paid for ULIP retirement under section 80CCC is Rs. 1, 50,000. Further the overall limit of section 80C/80CCC/80CCD (1) is Rs. 1, 50,000. Of course you can invest a higher amount, but the deduction will be limited to Rs 1, 50,000.

As per the income tax act ‘any sum paid to keep in force’ a policy can be claimed as a deduction. So pick the entire amount paid by you for Section 80C deduction. Include service tax and any other charges which have been collected by the insurer.

Life insurance ULIP must be kept in force for 2 years to claim deduction u/s 80C – Do remember to regularly pay the premiums and continue your ULIP plan to avail tax benefits. If the ULIP is discontinued before 2 years, tax benefits u/s 80C will not be allowed. Any deduction allowed in the previous years will be added back to your income in the year in which ULIP is closed.

Tax benefit on partial withdrawal / Maturity – Under section 10(10D), for life insurance ULIP policy where the premium payable to the sum assured does not exceed 10%, the amount received on partial withdrawal or maturity is exempt from tax.

If the above ratio exceeds the prescribed limit anytime during the term of the policy, future proceeds of the policy will be taxable, except in case of death, under Income from other sources in the income tax return. This is taxable at the slab rate applicable to you.

Tax benefit under a retirement ULIP on commutation – Under section 10(10A), commutation is tax free. Surrender or pension received will be taxable.

ULIP bring twin benefits of tax saving at the time of investment & maturity as well as life insurance or retirement benefits.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/06/ritikashah11998-28/

Should one exit Ulip after lock-in period ends?

It is more than five years since the Insurance Regulatory and Development Authority of India (IRDAI ) introduced its new set of guidelines for unit linked insurance plans (Ulips) in 2010. Among several changes in the way Ulips are structured, an important change was to increase the lock-in period from three to five years. However, should a Ulip holder exit after the lock-in period ends? Let's find out an answer to this.

If one is contemplating an exit immediately after the lock-in period has ended, there is a possibility that the Ulip was bought as a medium-term investment product. When there is a misalignment between the product features and the goal, there ought to be disappointment. Insurance is a long-term product and any early exit is therefore not advisable. Parag Mathur, General Counsel and Head of Compliance, BankBazaar.com, says, "It is only if Ulips are held until maturity (10-15 years)can expect reasonable returns.

Although Ulips provide insurance cover also, they have largely been 'perceived' as an investment product. Let's take a look at how equity funds of Ulips have performed over the last 5 years.

Exiting your Ulip immediately after the lock-in period ends after 5 years may not be the right approach. Remember, you would have paid a major portion of total charges in the first five years and when the time has come for the fund value to improve, an exit will be unwarranted.

Post-exit

Still, if an exit is required, ensure that various financial goals are not jeopardised. Mathur says, "Ulip holders who are looking to surrender after the lock-in period of five years can do so without having to bear any surrender penalty, but they should get back into disciplined investing by starting an SIP and try not to look for returns in products that cover risk and return at one go." Maybe, it's time to re-visit one's financial plan to make sure those risks and investments are well-aligned to achieve the goals.

Whom does Ulip suit

Ulips suit those who lack financial discipline and find it a bit tardy to keep protection and investment needs separate. Further, Ulip Insurance India suits only those goals which are at least ten years away. If these two conditions are met, then only consider investing through a Ulip, else it's always better to stick to creating a mutual fund portfolio comprising of large and mid cap funds and buying a pure term insurance plan for protection needs.

Source: http://bestulipinsuranceplan.blog.com/2016/06/03/ritikashah11998-5/

New ULIPs: Are they Any Better??

“No Sir, the Old Expensive ULIPs have gone now. The New ULIPs have been launched with much lower charges. You should invest in them”. These are the new “in-statements” of the insurance advisors these days who were going gaga over the Old ULIPs to be purchased before 31st August as according to them, the ULIPs will be totally unattractive after 1st Sep 2010. (Obviously, they were viewing the discontinuation of the old ULIPs as a painful extinct of their money making machine).

What is surprising is, how can these guys suddenly take a 180 degree turn on their opinion in such a short time? Must say, they really need to practice a lot to do so.

Anyways, what is more relevant for us is, are the new ULIPs any better for us?? Let’s have a look

Lower Charges

The new ULIPs are being marketed with the USP of having “Lower” charges. Now why are the charges lower? Because they are less than the exorbitantly high charges earlier. Something like saying, “Earlier we were hitting you with a Stone, now we are hitting you with a brick. So you should be happy”. Why should I be happy?? I am still getting hit with the charges when I have cheaper options available with me. Or in other words, what I can see is, the “Low” charges of new ULIPs are still higher than the charges of Mutual Funds. So why should I still go with ULIPs ??

Mandatory higher Life Risk Cover

The new ULIPs would have a minimum life risk cover of 10 times of the annual premium paid. Again, problem remains the same. If a person pays a premium of Rs. 50,000 then the life risk cover would be Rs. 5 Lakhs. Now a life risk cover of Rs. 5 Lakhs is still a very insufficient amount for a person who is paying Rs. 50,000 as premium and would be earning in excess of Rs. 3 lakhs p.a. So new ULIPs lose on insurance front as well. Term plan still remains the best option. For a 30 Year old, a term plan of Rs. 50 Lakh could be available at a premium of just Rs. 8000-8500 p.a. Would be surprised if any new ULIP could match that. So why ULIP then??

Increase in Lock-in Period

“ULIP is a long term product and thus the lock in is increased from 3 years to 5 years”. The investors in our country would give up on liquidity generally for 2 reasons : One is tax saving and other is assured returns. This is why we have successful investments in Banks FDs (for assured returns) and ELSS for tax savings in spite of lock-ins. However, given that after the current DTC, ULIPs will not qualify for tax savings, how good a deal it would be to give up your liquidity for 5 years?? Also, if you decide to invest say Rs. 1 Lakh in the new ULIP this year, then you need to invest this amount for next 5 years. However, you might not get the tax benefit from April 2012. So you will need to pay Rs. 1 Lakh for this ULIP and Rs. 1 Lakh for the tax saving investments as well. So why ULIP??

Lower Surrender Charges

Again referring back to the point of “Lower Charges” above, my first question is

“Why should there be surrender charges at all?”

Their Answer, “To recover the initial acquisition costs”

My next question, “Why there is such a high acquisition cost?”

Their answer, “Because we have to pay high commissions to our agents”

My further question, “Why do you pay such high commissions to agents”

Their answer, “Because they have to convince a lot for these products. People don’t buy easily”

And My Final Conclusion is, “People don’t buy easily because there are surrender charges and several other charges which make these products unattractive”. So basically this is a vicious circle of Surrender charges which would also sound like the “Egg and the Hen Story”. Point is, ULIPs still have surrender charges and thus they would strangle my liquidity.

Minimum Return Guarantee of 4.5%

The minimum return guarantee might sound like a breather to those who are scared of the markets. But in my opinion, this feature kills the long term benefits of ULIP. The problem with ULIPs was never that it is linked to the market. The problem was with the heavy charges and the way it was being marketed. So introducing this feature would compel the insurance companies to park more money into debt products and thus my dream of creating wealth for my retirement with the help of ULIPs will be shattered to pieces.

To Conclude

In a nutshell, I would say that, though the new ULIPs could be “slightly” better than old ones, they are still not good enough an investment or insurance option. For insurance, go term, get high risk cover at low premium.

Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/06/01/ritikashah11998-26/