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

ULIPs in India – Best ULIPs Plans in India Online

Unit Linked Insurance policy (ULIPs) is a combination of insurance cover plus investment. A part of premium is paid to the insurance cover option and remaining part is invested in various equity and debt schemes. Customers have the option of choosing the type of fund either debt or equity or a mix of both based on their investment need. Various types of funds available in ULIP Plans are explained below

Equity Funds: Initially invested in company stocks. Risk coverage is Medium to High.

Income, Fixed Interest and Bond Funds: This type of funds are Invested in government securities, corporate bonds and other fixed income instruments. Risk coverage is Medium.

Cash Funds: Cash Funds also known as Money Market Funds. This type of funds is invested in bank deposits, cash and money market instruments. Risk coverage is low.

Balanced Funds: This type of funds is combining equity investment with fixed interest instruments. Risk coverage is medium.

Benefits of ULIP: A unit linked insurance policy (ULIPs) acts like a savings vehicle but also has the benefits of getting insurance cover along with the investment.

Example of ULIP: Suppose, a person buys a ULIP which is combination of risk cover plus investment. After paying premiums, the insurance cover is given to the person by deducting some charges by insurer for what he had paid. Major portion of amount is invested into fund chosen by person and that is converted into units. While cancellation of units Fund management charges, mortality cover and similar expenses are deducted.

Source: http://www.policydunia.com/ulips/

ULIP

Best Ulip Insurance Policy

Best Ulip Insurance Policy

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