How to select the right ULIP ?

Source : Vishal    on  28 January 2011

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ULIPs are the most miss sold products in the Personal Finance domain. ULIP plans are revolutions for those who are looking for insurance and assured return on their insurance investments.

 These insurance products along with assured tax returns are also linked with tax benefits. The assured return on insurance investments has impressed many investors.

In the conventional Insurance products, the insurance component takes edge over the saving component, but in ULIPs insurance cover is secondary focus, while focusing mainly on return pert of your investment.

 ULIP offers opportunity for investor to select a product which matches their risk profile. Depending upon the risk factor of the investor he can select any ULIP product.

ULIPs are more like Mutual Funds, in term of their functioning, payment of premium and declaration of units in terms of NAV.

Whenever you are going for ULIPs, you should be well informed about ULIPs. ULIPs are most evolved investment avenues, and thus making well informed decisions is the key if you want to invest in ULIPs.

Read following tips which can be informative for your ULIP investments.

1. Understand ing ULIPsIn market there is a wide range of ULIPs available and which makes ot difficult for the investor to choose correct ULIP.Before investing in any ULIP try to get as much as information on ULIPs. Be aware of what product you are choosing for your investment.

Understand all the terms and conditions clearly before investing in ULIPs. You should try to gather information on ULIPs from various source of information including web, and print media information from Insurance companies.

2. Focus on your need and risk profileChoose a plan which focuses on your need and risk. Risk profile should be deciding factor in choosing a ULIP. Depending upon your risk profile you should go for ULIPs option which suits you better.

3. Comparing ULIPs from various companies:All the insurance companies offer many ULIPs, and ULIPs varies on parameters like expenses,premium payouts and performance etc. ULIPs work on premium payments as opposed to sum assured in the case of conventional insurance products.Before investing in any ULIP you should compare it on the basis if performance of ULIP. 

You should evaluate ULIPs on the basis of what's performance of debt, equity and balanced schemes and performance of various portfolios.

 Expenses play a major role in ULIP so an assessment on this parameter is also necessary.Make some enquire about the top-up facility offered by ULIPs i.e. additional lump sum investments which can be made to enhance the policy's savings portion. 

This way policyholders will be able to increase the premium amounts, thereby providing presenting an opportunity to gainfully invest any surplus funds available.

4. Go for an experienced insurance advisorBefore doing any kind of major investments you should always select and financial advisor, who is having a through knowledge of insurance instruments. But make sure that the advisor who you are seeking is unbiased and independent; he should not be broker of some insurance company. 

You should also look for reviews of the financial advisor, from his previous clients and also check standards of his services.

It is very important that you should get a unbiased and independent advice on your ank kind of investments, so its always better to look for an advisor who asks for payments for his advice, because in that case, he will be working for your welfare not for the insurance company, whose products he will advice you. 

It is also very important that you should ask your advisor to provide you more services, rather than just filling and submitting the required forms.

About The Author:

Looking to advice on ULIPs log on to PersonalFN. PersonalFN provides Financial Planning,Investment Planning, Insurance planning and Mutual Fund Research and Recommendation services to investors, who are looking to invest in Mutual Funds in India. PersonalFN also provides Financial Planning Calculators and Wealth Tracker Software to track your investments.http://www.personalfn.com

Unit-linked plans: More lip service

Source:Neha Pandey & Shilpy Sinha / Mumbai May 27, 2010, 0:43 IST

The proposal to cap surrender charges may ensure buyers get back some — just some — of their investment.

Last week, the Insurance Regulatory and Development Authority (Irda) put up draft proposals fixing surrender charges for unit-linked insurance plans (Ulips) and the revival period for lapsed polices on its website.


Irda proposed that surrender charges be capped. For policies of less than 10 years, the charges might be capped at 2.5-12.5 per cent of the fund value in the first five years. For policies with tenures of more than 10 years, the charges could be fixed at 2.5-15 per cent of the fund value for the first six years. After the fifth (for policies of less than 10 years) and sixth (for more than 10 years) years, the charges would be zero.

On the face of it, the charges look nominal. But, the operative word here is ‘fund value’. This is to be arrived at after deducting all the costs. According to the draft guidelines, “The surrender value of the policy is the amount remaining in the fund account less applicable surrender charges which is refundable to the policyholder.” That is, surrender value is equal to fund value minus surrender charges.

HIGH COSTS, LOW RETURNS PREMIUMS: Rs 1 lakh per year; Policy: 10 year RATE OF RETURN: 10 per cent per annum
Year	Total cost* (Rs)	Fund value (Rs)	Surrender charge (%)	Amount received (Rs)#
1	60,000	44,000	12.5	38,500
2	15,000	141,900	10.0	127,710
3	15,000	249,590	7.5	230,870
4	10,000	373,549	5.0	354,871
5	10,000	509,904	2.5	497,156
*Total fund value at year-end, including returns #Withdrawal at year-end

Here’s the catch. Given that Ulips front-load their policies in the first few years, the fund value itself will be low. For instance, there are charges under various heads like premium allocation and policy administration. The costs can be as high as 60-100 per cent in the first year itself.

As a result, even if the guidelines come into effect, buyers of these policies will not get much of their money. Rahul Aggarwal, chief executive officer of Optima Insurance Brokers, said, “The entire premium will be initially used for various costs applied on the policyholder. Therefore, there will be no premium left for any surrender charge to be levied in the initial years.”

Let’s understand this with an example. Let’s say the first year’s premium that you have paid is Rs 1 lakh for a policy of less than 10 years. Assuming the first year charges at 60 per cent of the premium (Rs 60,000), the fund value of the policy is Rs 40,000. Also, returns are being assumed at 10 per cent a year.

Even at this rate of return, the buyer of the Ulip is unlikely to get back even his principal of Rs 5 lakh if he exits the policy in the fifth year (see High costs, Low returns). In fact, if the investor exits at the end of the first year, he may get only Rs 38,500.

If he does so before the end of the first year, the number could be much less.

As far as returns go, though it has been assumed that the policy is earning 10 per cent a year, it will depend on market conditions. In a bad year, you may not get anything. “With policies with high front-end costs, you stand to get back nothing from the capital invested,” said Suresh Sadagopan, a certified financial planner.

“Things could improve slightly. 

Most insurers deduct all the remaining amount (Rs 40,000 in the first year, in this case) if the investor withdraws in the first year, to recover costs,” said an executive of a top life insurance company, who did not wish to be named.

The good part: The amount will be completely tax-free, because the product will be treated as an insurance plan by the income tax department. In case of a pension plan, both capital invested and returns are taxable if the policy is surrendered in the interim.

Insurers said since Ulips were long-term products, withdrawals or surrender charges should not worry policyholders. G V Nageswara Rao, MD and CEO, IDBI Fortis, said, “With recent regulatory changes, Ulips have become more attractive. These are best suited for the long term.”

New Ulip rule to reduce insurers' income

SOURCE :BS Reporter / Mumbai May 21, 2010, 0:14 IST

Life insurance companies anticipate a fall in premium collected through unit-linked pension products. This is due to the Insurance Regulatory and Development Authority (Irda) making life cover compulsory with pension plans.

The changes apply from July 1. At present, life cover is optional with unit-linked pension plans. At present, pension products account for 25 per cent income from new business for the industry.

“Pension is mainly a savings instrument. Bundling it with life cover is not a very good idea. This will take away the charm of the product. We expect our share from pension plans to dip significantly, from 55 per cent to 25-30 per cent,” said a senior executive of Star Union Daiichi Life Insurance.

For another new entrant, IndiaFirst Life, pension products contribute a third to total income. “The recent changes will impact sales of pension products. They will come down,” said managing director and CEO P Nandagopal.

“Bundling the two products is not a good idea. Pension products have lost their sheen. There will not be any advantage of buying a unit-linked pension plan. We see a fall in income from pension plans,” said Sanjeev Pujari, SBI Life’s Chief Actuary. The share of pensions in the overall premium collection for SBI Life is 10-15 per cent.

In addition, Irda has banned partial withdrawal for pension products. Insurers can convert the accumulated fund value into an annuity only at maturity. However, the insured has the option to convert up to one-third of the accumulated value into a lump sum at the time of maturity. In a surrender, only up to a maximum of one-third of the surrender value could be availed in a lump sum and the remaining amount has to be used to purchase an annuity.

Insurance firms set to defy Sebi

Source:BS:Shilpy Sinha / Mumbai April 27, 2010, 0:21 IST

To approach Irda for new Ulips
Several life insurance companies in the country are

preparing to take on the markets regulator Securities and Exchange 

Board of India (Sebi) over unit-linked insurance plans (Ulips).

The insurers are working on new insurance-cum-investment schemes and they plan to approach their regulator, the Insurance Regulatory and Development Authority (Irda), for permission to launch these.

This would be in defiance of the Sebi directive issued on April 13, which asked insurance companies to register with it before launching new Ulips.

While companies that Business Standard spoke to were unwilling to come on record on the issue, they confirmed working on new Ulips.

“As of now, the roadmap is insurers will go to Irda. If the insurance regulator does not approve, we will then decide on what to do, whether to register with Sebi before the matter is resolved,” said Life Insurance Council Secretary General S B Mathur. Life Insurance Council is the representative body of all life insurance companies.

Under the current norms, insurance companies are required to give details of any new product they intend to launch to Irda, which then clears the scheme. A plan is deemed to be approved if no questions are raised over it by the regulator within 90 days of filing.

Ulips were being regulated by Irda until April 9, when Sebi barred 14 insurance companies from selling or renewing these products. The Sebi order said any market-related product needs to be cleared by it, since it is the market regulator.

Irda, however, asked the insurers to ignore Sebi’s directive, arguing that only Irda could regulate insurance companies.

The government then stepped in to avoid a showdown between the two regulators. It advised the regulators to seek a legal remedy on the question of jurisdiction.

Later, Sebi withdrew its April 9 order, but asked the insurers to register with it ahead of launching new Ulips. The regulators, however, are undecided on which court they should approach for legal opinion.

With the stock markets showing signs of stability and the investors’ risk appetite growing, demand for Ulips has picked up. Insurance companies want to encash on the improved sentiments, especially in the second half of the financial year, when sale of their products usually goes up.

“The second notice from Sebi is only a clarification and not an order. Our earlier order asking insurance companies to ignore Sebi’s letter takes care of the clarification issued by the market regulator. Finance Minister had restored status quo ante on these policies. This is sufficient to understand that business will be carried as usual,” a senior Irda official said.

Besides, insurers are drawing comfort from a statement given by Minister of State for Finance Namo Narain Meena in Parliament last week.

“The Insurance Regulatory and Development Authority has reported that every life insurance company registered under the IRDA Regulations, 2000, can transact life insurance business, which includes unit-linked business,” the minister had said in a written reply in the Rajya Sabha.

“We have comprehensive plans but want to launch some innovative plans by June. As per our requirement, we will approach the insurance regulator for approval,” said the chief executive officer of a large private sector insurance company, which is among the 14 companies covered by Sebi’s April 9 order.

“It will take three-four months for the matter to be resolved. This is the time when we work on our products. Irda takes around two months to approve a product. If it is innovative with completely new features, it takes more time. We train our workforce, agents and sales team during the first half of the year and try pushing these products during the second half. We are working on policies and will approach our regulator to get it approved,” added a senior executive of another large insurance company.

Though state-run Life Insurance Corporation was outside the ambit of Sebi’s order, a senior executive at the company said the insurer was working on two-three new Ulips.

“Irda will take its time to approve them. We will be launching another set of new products in the coming weeks,” the executive added.

LIC has neither been served any notice nor banned from launching any products.

Sebi Executive Director K N Vaidyanathan had, however, said the remaining nine insurance companies were being investigated.

In recent years, Ulips have accounted for a bulk of new business, generating nearly 90 per cent of the premium income for the private players. In case of LIC, the share of Ulips in new business was around 65 per cent last year.

During 2009-10, insurance companies invested around Rs 75,000 crore in the stock markets and have together emerged as the largest domestic institutional investors.