Unit Linked Insurance Plan

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Unit Linked Insurance Plan From Wikipedia, the free encyclopedia Jump to: navigation , search For the university ULIP, see University of London Institute in Paris Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in the 1960s and is popular in many countries in the world. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning . In today's times, ULIP provides solutions for insurance planning, financial needs, and many types of financial planning including children’s marriage planning. Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire - equity, fixed- return or a mixture of both. In India investments in ULIP are covered under Section 80C of IT Act. However, the concept of having an investment and insurance by the same instrument was challenged by the market regulator SEBI which took up the matter to the Supreme Court of India .The Indian government brought down curtains on the two-month long tussle between the regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority (IRDA). [1]

Transcript of Unit Linked Insurance Plan

Page 1: Unit Linked Insurance Plan

Unit Linked Insurance PlanFrom Wikipedia, the free encyclopediaJump to: navigation, search

For the university ULIP, see University of London Institute in Paris

Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in the world.

As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In today's times, ULIP provides solutions for insurance planning, financial needs, and many types of financial planning including children’s marriage planning.

Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire - equity, fixed-return or a mixture of both.

In India investments in ULIP are covered under Section 80C of IT Act. However, the concept of having an investment and insurance by the same instrument was challenged by the market regulator SEBI which took up the matter to the Supreme Court of India .The Indian government brought down curtains on the two-month long tussle between the regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority (IRDA).[1]

[edit] References

1. ̂ "Irda wins Ulip battle". Business Standard. 20 June 2010. http://www.business-standard.com/india/storypage.php?autono=398840. Retrieved 2010-06-20.

Retrieved from "http://en.wikipedia.org/wiki/Unit_Linked_Insurance_Plan"

What is ULIP?

ULIP stands for Unit Linked Insurance Plans. As we know that insurance is for protecting our life

from the any uncertain events like death or accident. The purpose of the normal insurance plan is just

protecting the life but not ensuring any savings for the future. The example for the pure insurance

plans are term insurance. Many people wanted plan which gives protection also gives the returns for

their investment. So, insurance companies come up with the ULIP plan where the premium amount is

invested in the stock market and returns better income on the maturity period.

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What is the difference between ULIP and Mutual Funds?

In structure both ULIP and Mutual Funds looks similar. But, in objective they are different. Because of

the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you

have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high

first-year charges towards acquisition (including agents’ commissions). As a result, they find it difficult

to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several

advantages over mutual fund managers.  Since policyholder premiums come at regular intervals,

investments can be planned out more evenly.  Mutual fund managers cannot take a similar long-term

view because they have bulk investors who can move money in and out of schemes at short notice.

From October 2009, IRDA has set the maximum fees amount to be levied against the ULIP

policies. Which makes the ULIP more compete against the mutual funds.

Consider the following points before choosing the ULIP Policy

Talk to the agent for more details about the policy. If he guarantee’s any return after ‘N’ years,

then you should be careful. Keep in mind that your money is invested in the market. The

returns are purely depends on the market performance.

Buy the policy with minimum of 10 years. In the long term, ULIP policies give very good

returns.

If possible, try to analyze the market condition before staring the investment.

Learn the fundamentals of ULIP policies.

Don’t buy the ULIP just for the tax savings purpose.

Compare the different ULIP policies in the market.

Summary

In this article I have explained about the ULIP plan and the purpose of the ULIP. In my next article I

will be writing about the different ULIP plans and how to choose the better plans amount the many

players in the market. Thank you for reading this article!!

You can subscribe to our future articles here.

ULIP ban on 14 private life insurance companiesTNN, Apr 10, 2010, 03.29am IST

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ET Now: SEBI bars insurance cos from selling ULIPs

MUMBAI: In a significant order late on Friday, market regulator Sebi banned issuance of Unit-Linked Insurance Plans, popularly known as ULIPs, by life insurance companies.

Sebi has asked 14 private insurance companies, including market leaders like SBI Life, ICICI

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Prudential Life and Reliance Life Insurance, not to issue any more ULIP products. The Sebi order does not cover state-owned insurance major LIC. There is no immediate clarity on the fate of existing products.

At present, over 70% of the new business premium for most insurance companies come from ULIPs, running into thousands, if not lakhs of customers. The genesis of the Sebi order goes back to the feud between MFs and insurance companies.

when the latter started issuing ULIPs about 5-6 years ago, offered huge commissions to insurance agents and flooded the market with these products which nearly mirrored mutual fund (MF) products. ULIPs are products that combine insurance and investment for the insured and are mostly market-linked.

Between 2005 and 2008, when the stock market was on a bull run, MFs lost business but insurance companies mopped up large sums of money through ULIPs.

In December 2009 and January 2010, Sebi had issued show cause notices to 14 insurance companies asking them why action should not be initiated against them for issuing investment products without Sebi's permission. On Friday, Sebi wholetime member Prashant Saran passed the order putting a ban on ULIP products by these 14 insurers.

One of the main contentions for Sebi was that although a ULIP is an insurance product which comes under IRDA, part of it is also an investment product which should ideally be regulated by Sebi.

Read more: ULIP ban on 14 private life insurance companies - The Times of India http://timesofindia.indiatimes.com/business/india-business/ULIP-ban-on-14-private-life-insurance-companies/articleshow/5780118.cms#ixzz0zWMOBTjh

Unit Linked Insurance Plans (ULIP)Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of risk protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the value of the underlying assets at the time.

In a ULIP, the invested amount of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund. A Unit is the component of the Fund in a Unit Linked Insurance Policy.

The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP investors have the option of investing across various schemes, i.e, diversified equity funds, balanced funds, debt funds etc. It is important to remember that in a ULIP, the investment risk is generally borne by the investor.

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have the flexibility to alter the premium amounts during

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the policy's tenure. For example, if an individual has surplus funds, he can enhance the contribution in ULIP. Conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). ULIP investors can shift their investments across various plans/asset classes (diversified equity funds, balanced funds, debt funds) either at a nominal or no cost.

Expenses Charged in a ULIP

Premium Allocation Charge:A percentage of the premium is appropriated towards charges initial and renewal expenses apart from commission expenses before allocating the units under the policy.

Mortality Charges: These are charges for the cost of insurance coverage and depend on number of factors such as age, amount of coverage, state of health etc.

Fund Management Fees:Fees levied for management of the fund and is deducted before arriving at the NAV.

Administration Charges:This is the charge for administration of the plan and is levied by cancellation of units.

Surrender Charges:Deducted for premature partial or full encashment of units.

Fund Switching Charge:Usually a limited number of fund switches are allowed each year without charge, with subsequent switches, subject to a charge.

Service Tax Deductions:Service tax is deducted from the risk portion of the premium.

ULIPs : An Introduction

Most importantly, what are ULIPs? Here, you will find all the information you need to set your mind at ease about how to invest in ULIPs, and which ULIP is right for you. ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by you. Simply put, ULIPs are structured in such that the protection element and the savings element are distinguishable, and hence managed according to your specific needs. In this way, the ULIP plan offers unprecedented flexibility and transparency.

Working of ULIPs

It is critical that you understand how your money gets invested once you purchase a ULIP: 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 mixture of funds chosen by you. Mortality charges and ULIP administration charges are thereafter deducted

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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. The pie-chart below illustrates the split of your ULIP premium: 

Types of ULIPs

One of the big advantages that a ULIP offers is that whatever be your specific financial objective, chances are that there is a ULIP which is just right for you. The figure below gives a general guide to the different goals that people have at various age-groups and thus, various life-stages. 

  Depending on your specific life-stage and the corresponding goal, there is a ULIP which can help you plan for it.

 

ULIPS FOR RETIREMENT PLANNING

Retirement is the end of active employment and brings with it the cessation of regular income. Today an increasing number of people have stated planning for their retirement for below mentioned reasons

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Almost 96% of the working population has no formal provisions for retirement With the growing nuclearisation of family structure, traditional support system of the younger

earning members – is no longer available Developments in the healthcare space has lead to an increase in life expectancy Cost of living is increasing at an alarming rate

 Pension plans from insurance companies ensure that regular, disciplined savings in such plans can accumulate over a period of time to provide a steady income post-retirement. Usually all retirement plans have two distinctive phases 

The accumulation phase when you are saving and investing during your earning years to build up a retirement corpus and

The withdrawal phase when you actually reap the benefits of your investment as your annuity payouts begin

 In a typical pension plan you have the flexibility to make a lump sum payment or a regular contribution every year during your earning years. Your money is then invested in funds of your choice. You can opt to receive the annuity at any time after vesting age (age at which you become eligible for pension chosen by you at the inception of the plan). Most of the Unit linked pension plans also come with a wide range of annuity options which gives you choice in structuring the post-retirement benefit pay-outs. Also at the time of vesting you can make a lump sum tax-exempted withdrawal of up to 33 per cent of the accumulated corpus. In a retirement plan, the earlier you begin the greater you gain post retirement due to the power of compounding. Let us take an example of Gaurav & Hari. Both of them want to retire at the age of 60. Gaurav starts investing Rs. 10,000 every year from the age of 25 till the time that he retires. In all, he would have invested Rs. 350,000. If his investments were to earn 7% return every year, at the time of his retirement, Gaurav will have a retirement corpus of Rs. 13, 82,368. Now, Hari starts investing 10 years later (i.e. at the age of 35) and in order to make up for the lost time, invests Rs.15,000 every year (which is 50% more than Gaurav’s annual investment). So, by the time of his retirement, he would have invested Rs. 3,75,000. And assuming the same annual return of 7%, he will end up with a retirement corpus of Rs 9, 48,735. 

  So, you see how despite setting aside more than 50% of Gaurav’s annual contribution, Hari ends up with a retirement corpus which is almost a third lesser than Gaurav’s. That is the power of compounding. Which is why, it is never too early to invest in a ULIP for retirement planning. ULIPS FOR LONG TERM WEALTH

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CREATION

ULIPs are the right insurance solutions for you if you are looking for a strong wealth creation proposition allied to a core insurance benefit. Such plans are ideal for people who are in their late 20s and early 30s and by investing in such a plan get the flexibility of using it to fund any of their long-term financial goals such as purchase of a house or funding their children’s education. The added element of life cover serves to make these plans a wholesome financial investment option. Wealth Creation ULIPs can be primarily classified as 

Single premium - Regular premium plan :Depending upon you needs & premium paying capacity you can either opt for a single premium plan where you need to pay premium only once during the term of entire policy or regular premium plans where you can premium at a frequency chosen by you depending upon your convenience

 

Guarantee plans – Non guarantee plans:Today there are wealth creation ULIPS which also offer guaranteed benefit. These plans are ideal insurance-cum-investment option for customers who want to enjoy the potentially higher returns (over the long term) of a market linked instrument, but without taking any market risk. On the other hand non guarantee plans comes with an in - built range of fund options to choose from –ranging from aggressive funds (Primarily invested in equities with the general aim of capital appreciation) to conservative funds (invested in cash, bank deposits and money market instruments with aim of capital preservation) so that you can decide to invest your money in line with your market outlook, time horizon and your investment preferences and needs.

 

Life Stage based – Non life Stage based:Life Stage based Ulips factor in the fact that your priorities differ at different life stages & hence distribute your money across equity & debt. Here the initial allocation is decided as per your age since age is a significant indicator of risk appetite. Such a strategy ensures that the asset allocation at all times is in sync with your age and changing financial needs.

 

ULIPS FOR CHILDREN’S EDUCATION

One of the most important responsibilities you have as a parent is to ensure that your child gets the best possible education that can be provided. Apart from conventional schooling, it becomes important to expose your child to different activities such as dance, painting and sports training for holistic development. As a parent, you want to ensure that their development is not hampered either due to rising costs or unforeseen circumstances. Today there are ULIPs that offer money at key milestones of your child's education thus ensuring that your child’s education continues unhampered even if something unfortunate happens to you. While, the death of a parent is an irreparable emotional loss, child education plans safeguard the child against the financial ramifications of the death of a parent. Apart from above mentioned benefit, child plans also offers below mentioned features. 

Flexibility of adding on various riders like Income benefit rider, disability rider etc to get additional benefits .For e.g. In case of income benefit rider, In the event of the death of the parent, the child will receive a regular pre-determined amount every year to meet the educational expenses.

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In case of unfortunate incidence of the death of a parent, not only will the child receive the sum assured immediately but will also continue to receive money at the key educational milestones.

  To know how much you need to invest for your Child’s future click here.

 

ULIPs for HEALTH SOLUTIONS

When you are young and working you save for various goals like marriage, education, retirement etc. but saving for health care is never considered or left for later. During these years we have various sources of income or savings on which we can rely for health emergencies. But with increasing cost of healthcare, proportion of this spend is increasing at an alarming pace. This is forcing families to borrow or sell assets to meet expenses during medical emergencies. And during old age health care expenses increase due to health deterioration because of age and higher incidence of chronic illness. Thus it is important for you to invest in health insurance today so that tomorrow you are fully prepared to meet rising healthcare expenses, which would be incurred during old age, with the right health insurance plan. Health ULIP is a recent innovation from the health insurance industry. In a health ULIP part of your premiums are allocated for investment designed specifically to build a health fund to meet future health related expenses. It aims to create a health savings kitty by investing in a long term flexible savings plan with multiple fund options. The health fund thus created allows you to claim for health related expenses of any kind and also fund your future health insurance charges. You can also avail of tax benefit on premium paid u/s 80D.

When ULIP work best?

Get the most out of your ULIP

Whether you are in the process of deciding which ULIP to invest in; or whether you already have a unit linked insurance policy to secure your important financial goals there are some key principles which should govern any decision related to ULIPs. Adhering to these key principles will allow you to make optimum utilization of your ULIP.  

Appropriate Life Cover   Right Fund Option   Long Term Investment   Know the Charges   Know the Features  

Appropriate Life Cover

CHOOSING an APPROPRIATE SUM ASSURED

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Unit Linked Insurance (ULIP) plans are designed to help you meet your financial goals by ensuring you the value of your investments, or your nominee sum assured, which is the life cover of your policy. To make sure that your ULIP is truly working to assure your goal, you should choose a life cover that provides your family with adequate finances and hence security even in your absence, so that important life goals of your family are always secured. Let us take the example of a 35-year-old man with 2 young children. He could begin with a sum assured of Rs 5 lakh. As the children grow and thereby the financial liabilities increase, he might want to increase the level of protection, which can be done by increasing his sum assured.  Choose the right ULIP for you.  

CHOOSING THE RIGHT FUND OPTION

Unit-Linked Insurance Plans (ULIPs) come with an in-built range of fund options to choose from – ranging from aggressive funds (primarily invested in equities with the general aim of capital appreciation) to conservative funds (invested in cash, bank deposits, and money market instruments with the aim of capital preservation) – so that you can decide to invest your money in line with your market outlook, time horizon, and your investment preferences and needs. If you have a high risk appetite, you should opt for a more aggressive investment option, and vice versa. Additionally you also have the advantage of switching fund options to make your investments work in tandem with the market. These days, various ULIPs also offer the options of life stage funds which keep dynamically altering themselves without you having to do any monitoring on your own.  Choose the ULIP fund option that’s a fit for you.  

STAYING with a ULIP for LONG TERM

Unit-Linked Insurance Plans (ULIPs) are meant to guarantee your financial goals over the long-term. As a short term investment tool, they will not give you considerable return on your investments, because of a product cost structure which is higher in the initial years. However, overall charge structure for the term comes down substantially over a long period of time thus allowing greater allocation of your premium in the chosen funds. Also in long term investment in ULIPs are less affected by temporary market fluctuations since data shows that over a long-term, market linked investments not only yield very attractive returns, but also have the least downside to them. To get the best out of your ULIP, you should remain invested in the ULIP for the long-term of at least 8-10 years. This way, your investment will truly experience the power of compounding and thereby create greater wealth for you to fulfill your important goals.  Choose the right ULIP fund, and relaxUNDERSTANDING the CHARGE STRUCTURE

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Unit-Linked Insurance Plans (ULIPs) are designed to meet two of your most important financial needs: protection and investment. Both these benefits have some charges attached to them; important charges to know about before purchasing a ULIP are: 

Premium Allocation charge Policy Administration charge Mortality charge Fund Management charge

 The important thing to note about ULIPs is that the overall charge structure in the long term comes down substantially, thus allowing greater allocation of premium to your chosen fund, thereby leading to wealth creation. It may be noted that insurers have the right to revise the fees and charges over a period of time. To know more about charges, please see our ULIP charges section.

KNOWING the FEATURES

Unit-Linked Insurance Plans (ULIPs) offer you a variety of features and benefits that no other single financial instrument does. Most ULIPs are rich in features such as top up, switch between funds, increase or decrease the protection level during the term of the policy, cover continuance option, surrender options & range of riders which can be attached to the main policy to provide you added protection. As with all other products, the exact features of a Unit Linked Insurance Policy differ from one product to another. You should always insist on seeing the brochure so that you can make right choices of ULIP to secure your goals – be it retirement planning, planning for your children’s education, or wealth creation.  

Why buy ULIPs

The ULIP edge

ULIPs are dynamic plans and are flexible by nature and hence allow for changes and high degree of customization in the plan as opposed to most of the financial plans which once purchased cannot be modified. It is because of embedded characteristics of transparency, flexibility, liquidity & goal based savings that ULIPs have emerged as preferred investment option today. The following subsections will not only help you to understand various attributes of ULIPs but also guide you to use these features to manage your policy. 

Flexibility   Transparency   Goal Based Savings   Tax Benefits  

Flexibility

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Flexibility to change your life cover: ULIPs give you the flexibility to choose your sum assured (insurance cover) at the time of policy inception. Moreover, some ULIPs allow you to increase your sum assured over the term of the plan. This is crucial as your protection needs keep on changing with time .Typically, greater the financial liabilities you have such as repayment of a home loan, greater will be your need for protection.

 

Flexibility to change premium amount: With ULIPs you can easily change premium amount as most ULIPs provide you the option to increase or reduce premiums after a certain period of time to match your premium paying capability. Another distinguishing feature of ULIP is Top up which is an additional contribution over & above regular premium so that if you receive extra money today you can invest the amount in your policy & maximize your investment gains.

 

Flexibility to opt for a rider: ULIPs also enable you to customize the policy with optional riders to enjoy additional protection. Riders are additional or supplementary benefits that are bought along with the main insurance policy. Some of the commonly offered riders by most insurance companies are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. a critical illness rider cover major critical illnesses like heart attack etc. In case of contracting any of the above illness, the insurance company pays the insured amount.

 

Flexibility to choose your fund option: Most of the ULIPs come with an in - built range of fund options to choose from –ranging from aggressive funds to conservative funds so that you can decide to invest your money in line with your investment preferences and needs. What’s more, ULIPs even come with the option of switching between different fund options so that you are able to reap maximum benefits from your investments.

   

 

Transparency

One of the key advantages that ULIPs offer is complete transparency which makes the working of a ULIP abundantly clear to the investor. Thus, you are empowered to make informed decisions on how to best use your ULIP. 

Benefit Illustration As a customer it is your right to ask for a sales benefit illustration. Sales benefit illustration will help you understand how premium paid by you is utilized & what are the charges deducted year by year, by the insurance company for the term of the plan . It will also illustrate how your policy will grow in accordance with the choosen sum assured & premium. In fact IRDA has mandated that all insurance companies use two scenarios with 6 % & 10 % return rate to depict future returns.

 

Brochures and key feature documentsWhile benefit Illustrations play a significant role in explaining the quantitative aspects of ULIPs, it is

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also important for you to know the other features and benefits which the ULIP offers. All insurance companies come out with brochures for prospective customers to go through & understand the plan thoroughly. You should ask your insurance advisor to provide brochure of the ULIP you intend to purchase.

 Once a policy gets issued, your insurer will send you a key feature document capturing all the essential features of the plan. This is to ensure complete comprehension of the plan purchased. 

Free-look periodULIPs also offer you a distinct feature that no other financial product offers as of now. It is called Free-look period which is a 15 day window during which you can close the policy & get paid back the entire premium less charge borne by company in issuing the policy in case you are unhappy with the product.

 

Net Asset ValueIt is critical that you monitor the performance of your policy on a regular basis. This will help you ascertain whether you are on right financial track or not. To help you do so all life insurance companies publish the NAV of different fund options on their website on a daily basis so that you can track the performance of your policy on a regular basis. This will also help you make informed decisions when it comes to comparing fund performances.

 

Goal Based Savings

Everyone needs to save for their important life goals. One of the prudent ways to do so is by investing in ULIPs which are long-term systematic investment options designed to address key financial goals. ULIPs help you cultivate a disciplined savings pattern which ensures that the money being set aside will go towards the fulfillment of the specific objective. In the absence of such a focused approach, there is a high possibility of savings towards one objective getting utilized for an immediate short-term requirement, thus jeopardizing the long-term goal. ULIPs are a potent safeguard against such a tendency.  

Tax Benefits

ULIPs are an efficient tax saving instrument too .The tax benefits that you can avail in case you invest in ULIPs are described below: 

Life insurance plans  are eligible for deduction under Sec. 80C

 

Pension plans  are eligible for a deduction under Sec. 80CCC

 

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Health insurance plans  and critical illness riders are eligible for deduction under Sec. 80D

 

The maturity proceeds or withdrawals of life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section

  

 

ULIP Charges

WHAT are the DIFFERENT KIND OF CHARGES in a ULIP?

Unlike conventional traditional products charges are segregated in ULIP & thus made known to the customer. You can know the charges applicable on your ULIP through:  

Sales benefit illustration : A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know exactly how much money is deducted as charges & what is invested.

 

Brochure : A brochures informs you about the various charges & their purpose applicable on your policy.

 

Advisor : You should enquire your advisor about all the charge applicable on your policy.

 Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are: 

Policy administration chargesThese charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.

 

Premium allocation charges These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund.

 

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Mortality charges   Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.

 

Fund management chargesA portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC

 The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time. The above can be very simply broken down into: What a ULIP is A plan which gives complete clarity about the various charges deducted and why it’s being deducted and so how your fund will grow over time. What a ULIP is not A plan in which you don’t know where your money is going or what is happening to it.

   

Other ULIP Charges

ULIPs can easily be customized to suit one’s needs & requirements. This is primarily due to range of features that ULIPS offer to the customer. Below mentioned are few charges applicable in case you have opted for an additional feature. 

 ULIP BENEFITS

 APPLICABLE CHARGES

RIDERS: Riders are additional or supplementary benefits that are bought along with a main life insurance plan. Some of the commonly offered riders are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. In case you opt for a Critical illness rider you get additional protection from 9 critical illnesses.

Insurance companies levy rider charges in case you opt for riders.       

SWITCH: ULIPs not only allow you to invest your money in fund options with various debt – equity exposure but also give you the option to switch between different funds. For example, you can switch money from a fund

Your insurance company may charge you a fee for switching your funds Generally only a limited number of fund switches are recommended in a year as a ULIP is a long-term investment tool therefore most of the

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with 100% equity to a balanced portfolio, which has 60 per cent equity and 40 per cent debt.

companies allow a certain number of switches each year free of charge, with subsequent switches, subject to a minimal charge. 

TOP UP: One of the unique feature offered by ULIP is Top Up where you can make additional contribution over & above the regular premium. 

Insurance companies deduct a certain percentage from the top-up amount as charges. These charges are usually lower than the regular charges that are deducted from the annual premium. 

SURRENDER: You may decide to surrender (premature partial or full encashment of units) your policy before the term of the plan.

Surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. These charges are levied as a percentage of the fund value or as a percentage of the premium. 

 

How to Choose ULIP?

HOW to CHOOSE a ULIP THAT WORKS BEST for YOU

The wide range of ULIPs available in the market might make it difficult for a consumer to choose the correct ULIP. However if you were to follow a few simple steps choosing the right ULIP can be a smooth process.  Understand the concept of ULIPs thoroughly

Do your homework well and read as much as you can about ULIPs as you can before investing. Read the literature available on ULIPs on the web sites and brochures circulated by insurance companies. This will help you know the benefits and structure of the ULIP. Focus on your requirements and risk profile

Identify a plan that is best suited for you keeping in mind your risk appetite. In case you have a high-risk appetite, opt for a more aggressive fund option (an option that invests higher percentage in equities) and vice versa. Understand the peculiarities of the plan

Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, fund management charges and mortality charges. Examine the performance of the plan

Compare the performance of the plan with benchmark indices like BSE Sensex or Nifty in the past two or three years to get a better idea about the performance. Ensure that you can easily get information about your NAV when you need it. Thoroughly understand the flexibility and redemption conditions of an ULIP. Understand the charges levied on the product

Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, the fund management charges and mortality charges. You not only need to understand the charges in the first year but also through the term of the policy. 

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Compare ULIP products of different insurance companies

Compare products of different insurance companies in terms of premium payments, cost structure, performance of the scheme (equity as well as debt schemes), additional facilities such as top-up premium and free switch between different fund options, flexibility in terms of increasing or decreasing protection, reporting structure and flexibility in redemption. Know about the Company

Last but not least, insure with a brand you can trust to honor its commitment and service in accordance to your requirements

 

ULIP Faq, ULIPs Faq, Unit Linked Fund, Unit Linked Policies- ICICI Prudential

Q1. What is a Unit Linked Fund?

Unit Linked Fund is a pool of the premiums paid by the policyholders which is invested in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund depends on how the investments in the fund would perform. The fund is managed by the insurance companies.

Q2. What does a Unit stand for?

A Unit stands for a portion or a part of the underlying segregated unit linked Fund.

Q3. What is Net asset value?

Net Asset Value (NAV) is the value per unit calculated in rupees.

Q4. What is a Fund Value and how is it calculated?

Fund Value is the product of the total number of units under the policy and the NAV. The fund value for the purpose of claims, surrenders or any other clause stated shall be calculated on the basis of NAV.

Q5. What do I get at the end of my policy term?

The benefit received at the end of policy term is termed as maturity benefit. The policyholder is entitled to receive fund value as maturity benefit.

Q6. What should I verify before signing the proposal?

You should verify: 

All the charges deductible under the policy Features and benefits Limitations and exclusions Lapsation and its consequences Other disclosures Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the

life insurance council.

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Q7. What will my family receive if something happens to me?

In the unfortunate event of death during the term of the policy, the person appointed as nominee shall receive the higher of sum assured or the fund value. There are also certain ULIPs in market which give sum of Fund value & sum assured as death benefit.

Q8. Is investment return guaranteed in ULIPs?

Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

Q9. Can I change / switch my asset allocation?

Yes, you can change the investment pattern by moving from one fund to other fund (s) amongst the funds offered under a particular product. Such a change between funds is termed as a Switch. There will be a flat charge levied for any switch over and above the free switches.

Q10. What is Premium Re Direction?

Premium Re-Direction is the facility that allows a policyholder to modify the allocation of amount of renewal premium into a different investment pattern from the option (investment pattern) exercised at the inception of the policy.

Q11. Can I partially withdraw from my policy?

Yes, you can encash / withdraw a part of the fund anytime after completion of three years, subject to surrender charges as applicable to each individual plan.

Q12. Can I foreclose my policy? Are there any charges applicable?

Yes, you can foreclose your policy by Surrendering the policy. Surrender means terminating the contract once and for all. On surrender, the surrender value is payable to you which is Fund Value less the surrender charge. Surrender Charge means a charge levied on the fund value at the time of surrender of the policy.

Q13. What does redemption mean?

Redemption means encashing the units at the prevailing NAV offered by the company. This is applicable in case of exercising partial withdrawal, switch, maturity, surrender, settlement option or in the case of payment of death benefit.

Q14. What is the Settlement Option?

Settlement Option also known as periodical payment, means an option available to the policyholder to receive the maturity benefit as a structured payout over a period of up to 5 years after maturity.

Q15. What is the date of commencement?

Date of Commencement of Policy as shown in the policy certificate is the date on which the age of the life assured and the term of the policy are calculated and the same are shown on the policy certificate.

Q16. What is a Regular Premium Contract?

Regular premium contract means a ULIP where the premium payment is in level and paid in regular intervals like yearly, half-yearly or monthly.

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Q17. What is my monthly due date?

Monthly due date means the date in any subsequent calendar month corresponding numerically with the date of the commencement of the policy. In the event that there is no date in any subsequent calendar month corresponding numerically with the commencement date, then the due date shall be the last date in that subsequent calendar month.

Q18. What does “Cover Cessation Date” mean?

Cover Cessation Date (Date of Maturity) as shown in the policy certificate is the date on which the policy contract comes to an end and is the date on which the maturity benefit becomes payable.