Best Ulip Insurance plan

Best Ulip Insurance plan

Should you Continue your ULIP Policy

Let’s look at the parameters on which you can evaluate your ULIP Policy and take a decision if you should continue paying the yearly premium, go for a premium holiday or surrender the policy.

Charges structure: ULIP Policies normally levy Premium Allocation & Policy Administration Charges. The extent of these charge vary in each policy. From the premium you pay premium allocation charges are deducted and net premium is invested in the fund as per options selected by you. Policy Administration Charges are normally levied on a monthly basis. If your policy was taken few years before, it is likely to be a high cost structure. Generally, if these charges are exceeding 1% of the annual premium, then it makes us uncomfortable and we normally raise a red flag.

Lock in Period: Normally most ULIPs come with a lock in period of at least 3 years. So even if your cost structure is high, but lock in period is not over, then you would need to continue the policy at least till the lock in period is over.

Surrender Charges: While you make a decision if you should continue your policy, please also have a look as to how much surrender charges you will have to incur. Your policy may have zero surrender charge after about 5 years. So based on the surrender charge currently being applicable, it may be a good idea to wait for a year or so and then surrender your ULIP policy.

Fund Performance: Your policy is costly but is your fund is doing well? If yes, then you may end up with a positive ROI, depending upon market situations. If your policy is costly and the fund is not doing too well, then this may further worsen the situation. Please also check if your funds are invested appropriately mapped to your risk profile? Say if you are in early 30’s and have 5+ years to go before this policy matures, then it’s likely to be a good idea to invest a major part of your fund corpus in this ULIP in Equity. Most ULIPs allow 4 fund switches free in a year. So you could accordingly switch your funds

Insurance Cover: Do you still need the Life insurance cover available in the ULIP policy? Your Life Insurance corpus is a function of your financial liabilities. If you have sufficient assets to take care of your financial liabilities, then you may not need a life insurance cover. On the other hand, if you have a sizable cover in the ULIP policy, then you should check your overall need of Life insurance and assess if you will be able to get a new life insurance cover. If you have a medical situation (e.g. Diabetes) then getting a new cover may be difficult or expensive.

Expected benefits: Some ULIP covers give Sum Assured+ fund value. Some ULIP covers provide Highest NAV guarantee. Some ULIP covers have a premium continuance option i.e. the policy continues even if you die mid-way, no further premiums are to be paid and the policy cash flows are paid to the nominee. Some ULIP covers provide additional benefits like 102% premium credit after 10 years. Some ULIP covers allow you to take a loan against fund value. So, please consider such factors while you make a decision to continue or surrender the policy.

If you do happen to take a decision to surrender or go for a premium holiday, then please communicate your decision in writing to your Insurance Company, fill up required forms and follow up with them to get a confirmation response. You may seek help from the Advisor or Customer Support Executive from the Insurance Company to guide you while you make this decision though they may be biased in you continuing their policy. Alternately, you can consult your Financial Planner.

Source: http://www.gettingyourich.com/blog/should-you-continue-your-ulip-policy

Ulip Insurance India

Ulip Insurance India

ULIPS and Section 80C

One of Investments which are eligible under Section 80C deduction is investment in ULIPS.

What is a ULIP? ULIP or Unit Linked Insurance Plan has a mix of insurance along with investment. From a ULIP the goal is to provide wealth creation along with life cover.  The seller of a ULIP puts a portion of your investment towards life insurance and rest into a fund that is based on equity or debt or both and matches with your long term goal. These goals could be retirement planning, children’s education or another important event you may wish to save for.

Tax Deduction under Section 80C? Deduction is available on ULIPS under Section 80C, provided the sum assured is at least 10 times the annual premium. This is within the overall limit of Rs 1,50,000 of Section 80C. Of course you can invest a higher amount, but the deduction will be limited to Rs 1,50,000.

How do ULIPS work? ULIPS are usually designed in a way that they allow you to switch your portfolio between debt and equity based on your risk appetite as well as your knowledge of how the market is performing. It has been noticed that many of the ULIP buyers do not have the time or adequate knowledge to understand the mix they must keep between debt and equity and also when to make the right switch. Therefore, if you are someone who has deep knowledge of how the fluctuation of interest rates and equity returns work – this may be the product for you. Also, it is wiser to invest in a ULIP with a long term horizon, of at least 10 years.

Can Best Ulip Insurance plan be bought for others? An individual may purchase a ULIP in his own name, or for spouse or any child. Child may be married or unmarried, dependent or independent, minor or major – all these investments shall qualify for deduction under Section 80C.

Tax benefit on maturity? You are allowed to make partial withdrawals after 5 years. There is no tax on the withdrawals & maturity for ULIPS provided the sum assured is at least 10 times the annual premium.

Source: http://blog.cleartax.in/ulips-section-80c/

Ulips Back In Traction

Boom in stock markets and improvement in the overall economy has made unit-linked insurance plans (ULIPs) to regain their traction once again.

After 2010, when the Insurance Regulatory and Development Authority (IRDA) revamped ULIP norms, private life insurers shifted their focus to traditional products. This led to massive fall in ULIP sales.

Typically, when stock markets rise, a lot of customers tend to surrender their policies to book profits but in the first half of current fiscal, insurers have seen a fall in surrender of ULIPs.

Insurers say that increase in interest in ULIPs has been a good opportunity for insurers to move towards a balanced product mix in line with customer needs, unlike earlier where the industry witnessed a more dominant mix in favour of either ULIPs or traditional products.

Life insurers are also encouraging customers to hold on to their ULIP products for at least 8-10 years to avail maximum product benefits.

However, the IRDA has taken cautious note of surge in ULIP sales, particularly, after the 2005 stock market boom when private life insurers ULIP sales surged and the industry faced several complaints of mis-selling.

In a recent guideline, The IRDA has asked insurers to structure Best Ulip Insurance Policy as long term investment product and return at least 90% of premium paid by the policyholders.

IRDA wants ULIPs to act as savings product rather than a term product, specially discouraging them for older age groups where mortality charge is higher.

What Are The Different Types Of ULIP

Types of ULIP

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

ULIP 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 

The following are some of the common types of funds available in India, along with an indication of their risk characteristics.

As we can see, equity funds invest largely in equity and carry higher risk. These funds are preferable for young investors with higher risk appetites. Income, Fixed Interest, Bond and Balanced funds provide lesser risk then equity funds. Middle aged investors with medium risk profile can opt for balanced funds that invest only part of the corpus in equities. Cash funds are an ideal option for risk-averse customers.

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 ULIPs 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://insuranceblog.asia/what-are-the-different-types-of-ulips/

Is It Time To Get Out Of High-Cost ULIPs ?

As per estimates, aggressive unit-linked insurance plans (ULIPs) funds that allocate 100% to equities have earned average annualized return of 9.43% in the past five years against 9.24% delivered by the sensex during the same period.

However, these numbers only show the rise in the Net Asset Value (NAV) and don’t reflect real returns for the investors. Many charges are not taken out of the NAV but deducted by reducing the number of units.

Before the 2010 guidelines, insurance companies used to frontload the charges on these plans, making first few years costlier. But in some ULIPs, the charges continue to be high even after the pain period of initial years is over. In some cases, charges are as high as 6.77% a year. If you include the fund management charges, the total cost to the investor is nearly 7% a year. And if you take into account mortality charges, the total charges paid by the policyholder will be even higher. This means, a ULIP must grow by at least 18-20% to deliver meaningful returns to the policyholders.

Hence, if you are holding such a high cost plan, it may be the time to get rid of this investment. But go through the fineprint of the terms and conditions before you close it. There can be surrender charges on pre-2010 ULIPs.

After the three-year lock-in period, the premature surrender charge is close to 3-4%. This gradually comes down over the next three-four years but some policies charge 1-2% even in the fifth or sixth year. Only after seventh year onwards there is no surrender charge.

However, before you surrender the policy, be clear about how the proceeds will be deployed. There is no point in withdrawing the amount if you plan to blow it away. In that case, it is better to remain invested.

Sources : https://www.policymantra.com/blog/is-it-time-to-get-out-of-high-cost-ulips/