Private life insurers see revival of interest in unit-linked insurance plans

MUMBAI, NOVEMBER 24: 

Stock market buoyancy and improvement in the overall economic environment have led to unit-linked insurance plans (ULIPs) making a comeback.

Two years ago

For the last two years, the private life insurance industry had primarily moved to selling traditional products after the insurance regulator revamped ULIP norms in 2010 by increasing the lock-in period, capping surrender charges and lowering commissions on their sale. This led to a massive dip in ULIP sales.

 “Since ULIPs account for more than 50 per cent of our portfolio, the inflow into these is helping us get new business premium with a growth of around 20 per cent from last year for the same period.”

Increase in business

Similarly, Max Life Insurance has seen an increase in business coming from ULIPs in the first half of the current fiscal compared to the same period last fiscal, according to Aalok Bhan, Director and Head - Product Solutions Management.

Dip in surrender

Bhan said typically, when stock markets move northwards, a lot of customers tend to surrender their policies to book profits but in the first half of this fiscal, Max Life has seen a fall in surrender of ULIPs.  Mayank Bathwal, Deputy CEO, Birla Sun Life Insurance, said, “The increase in interest in ULIP products 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.”

However, while Birla Sun Life has seen an increase in customer interest in ULIPs, there has not been a significant uptick in actual volumes as customers are still cautious on committing to long-term savings products, he added.

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

Regulator cautious

The insurance regulator too has taken a cautious note of the 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 Insurance Regulatory and Development Authority had asked insurers to structure ULIPs as long-term investment products and return at least 90 per cent of premiums paid by the policyholder.

Long-term product

Sunil Sharma, Appointed Actuary, Kotak Life Insurance, said, “The regulator wants ULIPs to act as a savings product rather than a term product, especially discouraging  them for older age groups where mortality charge is higher. The regulator is trying to address issues of customer grievances at the product design stage to reduce any chances of mis-selling.”

[Source: https://bestulipinsurancepolicy.wordpress.com/2015/08/18/private-life-insurers-see-revival-of-interest-in-unit-linked-insurance-plans/]

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 ULIP, 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.

[Source: http://blog.policyboss.com/?s=ulip]

ULIPS are Still a Great Investment Option. Here’s Why

Over the years, life insurance has usually been synonymous with life protection for the family of the policyholder upon his death. However, these days, it offers a lot more. In order to meet demands for better returns on insurance, ULIPs were designed as a dual benefit product. This product is a unique way to invest in the equity market along with getting the benefit of a life cover at the same time. What makes ULIPs even better is that, it is one of the most transparent financial products currently available. ULIPs have appeared more beneficial for the customer after having gone through a lot of regulatory changes in the recent past. Some of the reasons that ULIPs are still a good bet are as mentioned below.

Better returns: Following the revised guidelines for ULIPs, commissions and charges have been capped. These days, the policyholder has an opportunity to get higher/ better returns on their investment, as a larger amount will be going into the selected fund(s).

Longer lock-in period: Keeping your money secure is an essential part of your ULIP investment. Following the revision of the guidelines for ULIPs, the lock-in period has been increased from 3 years to 5 years, thus giving the corpus more time to grow. Also, since ULIPs are essentially long term tools, the increased lock-in period becomes attractive for those looking at long term savings, thus ensuring more protection for a longer period.

Lower surrender charges: In the past, ULIP’s had a 30-40% surrender charge. However, with the introduction of the discontinuance fund, there is a reduction on the cap on discontinuance charges, which means that the policyholder does not have to forgo large amount of money as surrender charges.

No policy lapse: Previously, non-payment of a premium could result in a policy lapse. However, following the revised guidelines it is not so. In case of discontinuance, i.e., a situation that could arise from non-payment of premium, the fund value gets transferred into a separate fund known as the discontinued policy fund/ policy account value till the policy is revived or upto the end of the revival period, whichever is earlier. The policy remains in force with the risk cover as per the terms and conditions of the policy. This fund gives minimum guaranteed interest rate of 4% on the discontinued fund (subject to change in line with interest rates provided by the savings accounts of certain banks, during the period the policy was in discontinuance).

Balance your portfolio: The biggest advantage of unit linked products is that they are flexible tools as they allow you to safeguard the investment against the vagaries of the market through the fund switch option. Few insurers offer unlimited free fund switching options, allowing you to alter the proportion of equity and debt investments, to help you achieve best returns in accordance to your age, risk appetite and financial goal.

Twin benefit: The biggest advantage for ULIPs is that, this type of plan comes with the twin benefits of life protection as well as a market-linked growth for the investment. Since this product is a bouquet of multiple benefits such as risk cover, extra coverage in the form of riders, long term investment, tax benefits, etc., bundled in one along with a good spread of risk, it can be treated as a comprehensive financial tool. Changes in the ULIP guidelines with regards to reduced remuneration have resulted in attrition in its distribution. However, for an aware customer, it is still one of the best options available today in the financial market .

[Source: http://lifeinsurance.bajajallianz.com/ulipedia/ulips-are-still-a-great-investment-option-heres-why-2/]

The Tax Advantage of Ulip Insurance India

While the low charges of new Ulips make them attractive, the main advantage is the seamless and tax-efficient transfer from debt to equity, and vice versa. This switching may be for varied reasons, including rebalancing the portfolio or even timing the markets by savvy investors. 

"Though retail investors may not have the bandwidth to switch on the basis of market views, people who are aware can make use of this facility very effectively," says Alam. It is important to note that Ulip is not just about equities. Smart investors can also move within debt, shifting to long duration funds when interest rates are expected to go down and moving to short-term funds when rates are on the rise. If mutual fund investors do this, they will have to pay tax on the short-term and long-term capital gains made on the fund. Since Ulips are insurance plans, the gains and maturity proceeds are tax-free under Section 10(10d). 

However, the sum assured must be at least 10 times the annual premium for this tax benefit. This year's budget has changed tax rules for debt funds. The minimum holding period has been increased from one year to three years. Debt fund investors will have to pay higher tax if they rebalance by shifting out of debt within three years of investing. However, there will be no tax in case of Ulips. Investors should note that insurance companies allow only a limited number of free switches. While some Ulips allow unlimited free switches, others permit only 4-12 free switches in a year. There is a Rs 100-250 charge for every switch beyond the free limit. Like banks, insurance companies also charge you less if you do the transaction online. For example, HDFC Click2invest charges Rs 250 per additional switch if done offline and only Rs 25 if the same is executed online.

Decoding the charges 

The charge structure of Ulips is not as straightforward as that of mutual funds. There is a premium allocation charge, a policy administration charge and a fund management charge. There is also the mortality charge for the life cover offered by the plan. The 2010 Irda guidelines say that the combined charge cannot be more than 2.25% a year in the first 10 years. They have also capped the fund management fee at 1.35% per annum, though many Ulips are charging less than that on their short-term debt schemes. 

The mortality charge differs across Ulips. Some plans offer either the sum assured or the fund value on death. These are Type I Ulips and their mortality charges go down as the fund value goes up. The Type II Ulips offer both, the fund value as well as the sum assured. Obviously, the mortality charges are higher when it comes to such plans. 

Though Ulips offer a cover to policyholders, the benefit may be a drag for those who are interested purely in investment. The low-cost Ulips are, therefore, Type I plans that will pay either the fund value or the sum assured. Here's how it will work. Suppose a person buys a Ulip with a Rs 1 lakh premium for 20 years. The plan will give him a cover of Rs 10 lakh (10 times the annual premium), but the insurance company will charge mortality premium for only Rs 9 lakh since the total risk for the company is Rs 9 lakh. With every annual payment of the premium, the risk of the company will come down, reducing the mortality charge. When the fund value of the Ulip exceeds the sum assured, the plan will stop deducting mortality charges and the entire premium will go into investment. 

Another way to reduce the impact of mortality charges is to buy the policy in the name of your spouse or child. Income from investments made in the name of a spouse or a child are subject to clubbing provisions, but since the maturity proceeds from Ulips are tax-free, you don't have to worry about that. You can also go for single premium Ulips, with an insurance cover of only 1.25 times the premium. However, the maturity proceeds of such a plan will not be covered under Section 10 (10D) and will be taxable in your hand. 

Before you buy a Ulip take this short test to know if you should buy such a plan 

You already have adequate life cover 

You typically need an insurance cover of 5-6 times your annual income. This entire insurance need may not come from a Ulip, so buy a term cover before you consider buying a Ulip. 

You understand that Ulips are market-linked products 

Like mutual funds, Ulip Insurance India also invest in the markets. Be prepared for the market risk that the investment will be exposed to. Not only equity funds but even debt funds can decline in value. 

You know that exiting in 5-6 years will not yield desired results 

Ulips were mis-sold as investments you can exit within three years. The lock-in period has been extended to 5 years but to get the best out of the Ulip, you need to hold it for at least 12-15 years. 

You know how to use the switching facility 

The switching facility of a Ulip is a key feature that differentiates it from a mutual fund. You can shift money from debt to equity, and vice versa, depending on your reading of the market. 

You can afford to pay the premium for the entire term 

As mentioned earlier, it is important to continue investing in a Ulip through the term of the plan. Buy a policy that you can continue for the full term without impinging on other financial goals. 

[source: http://timesofindia.indiatimes.com/business/india-business/Why-you-should-invest-in-Ulips-now/articleshow/44458163.cms]

Ulips are still good bets for you & me; here’s why

Whats in it for you

Over the years, life insurance has usually been synonymous with life protection for the family of the policyholder upon his death. However, these days, it offers a lot more. In order to meet demands for better returns on insurance, unit-linked insurance policies (Ulips) were designed as a dual-benefit product. This product is a unique way to invest in the equity market along with getting the benefit of a life cover at the same time. What makes Ulips even better is that it is one of the most transparent financial products at present available. Ulips have appeared more beneficial for the customer after having gone through a lot of regulatory changes in the recent past. Some of the reasons that it is still a good bet are as mentioned below.

Better returns: Following the revised guidelines for Ulips, commissions and charges have been capped. These days, the policyholder has an opportunity to get higher/ better returns on their investment, as a larger amount will be going into the selected fund(s).

Longer lock-in period: Keeping your money secure is an essential part of your Ulip investment. Following the revision of the guidelines for Ulips, the lock-in period has been increased from three years to five years, thus giving the corpus more time to grow. Also, since Ulips are essentially long-term tools, the increased lock-in period becomes attractive for those looking at long-term savings, thus ensuring more protection for a longer period.

Lower surrender charges: In the past, Ulip had a 30-40 per cent surrender charge. However, with the introduction of the discontinuance fund, there is a reduction on the cap on discontinuance charges, which means the policyholder does not have to forgo large amount of money as surrender charges.

No policy lapse: Previously, non-payment of a premium could result in a policy lapse. However, following the revised guidelines, it is not so. In case of discontinuance, that is, a situation that could arise from non-payment of premium, the fund value gets transferred into a separate fund known as the discontinued policy fund/ policy account value till the policy is revived or up to the end of the revival period, whichever is earlier. The policy remains in force with the risk cover as per the terms and conditions of the policy. This fund gives minimum guaranteed interest rate of 4 per cent on the discontinued fund (subject to change in line with interest rates provided by the savings accounts of certain banks, during the period the policy was in discontinuance).

Balance your portfolio: The biggest advantage of unit-linked products is that they are flexible tools, as they allow you to safeguard the investment against the vagaries of the market through the fund switch option. Few insurers offer unlimited free fund switching options, allowing you to alter the proportion of equity and debt investments, to help you achieve best returns in accordance to your age, risk appetite and financial goal.

Twin benefits: The biggest advantage of Ulips is that this type of plan comes with the twin benefits of life protection as well as a market-linked growth for the investment. Since this product is a bouquet of multiple benefits such as risk cover, extra coverage in the form of riders, long-term investment, tax benefits; bundled in one along with a good spread of risk, it can be treated as a comprehensive financial tool.

[source: http://www.mydigitalfc.com/insurance/ulips-are-still-good-bets-you-me-here%E2%80%99s-why-272]

Types of Unit Linked Insurance Plans

Unit Linked Insurance Plans or ULIPs, as they are better known, have emerged as the preferred choice of insurance-cum-savings vehicle for many Indians in the last decade. Many investors have invested in ULIPs to meet various financial goals, be it child education planning, house purchase planning or retirement planning. Yet many people have not understood the concept of ULIPs and hence ended up buying the wrong product.

What are ULIPs?

When we talk about insurance as an investment option – ULIPs suit the profile. ULIP is an insurance policy which provides dual advantage of Insurance as well as Investment. Here the premium which you pay is divided into parts – one part (small portion) is used to provide insurance and the other part (the larger one) is used to buy units for investment. Hence it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. The value of investments alters with the performance of the underlying fund opted by investor. Hence the investment risk is borne by the investor.

Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Hence investors can decide to invest their money in line with their market outlook, time horizon, and their investment preferences and needs. Different funds have different risk profiles. The potential for returns also varies from fund to fund:

How Do ULIPS Work?

We have seen many investors blindly going for ULIPs without understanding the nature of the product and hence end up getting an unwanted policy

When you decide the amount of premium to be paid and the amount of life cover you want from the ULIP, the insurer deducts some portion of the ULIP premium upfront. This portion is known as the Premium Allocation Charge, and varies from product to product. The rest of the premium is invested in the fund or a variety of funds chosen by you. Mortality charges and ULIP administration charges are thereafter deducted on a periodic (mostly monthly) basis by cancellation of units, whereas the ULIP fund management charges are adjusted from NAV on a daily basis.

Since the fund of your choice has an underlying investment – either in equity or debt or a combination of the two – your fund value will reflect the performance of the underlying asset classes. At the time of maturity of your plan, you are entitled to receive the fund value as at the time of maturity.

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 ULIP 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 such plans, 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: http://lifeinsurance.bajajallianz.com/tax_insights/lifeinsurancecategories/types-of-unit-linked-insurance plans/?utm_source=helpandsupport&utm_medium=posts&utm_campaign=backlinks]