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/]