Wednesday 26 August 2015

Should you continue to have faith in your ULIP Policy

All of us who have invested in ULIPs over the years have this question before us? In most situations ULIP have given below expected returns and you may tempted to think of cutting your loss by surrendering and investing the amount in other higher return investments. Let us therefore examine, whether it is good to surrender or continue with it till maturity. What is ULIP? Unit Linked Insurance Policy (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives investors the benefits of both insurance and investment under a single integrated plan. How it works? A part of the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes. The money collected by the insurance provider is utilized to form a pool of fund that is used to invest in various markets instruments (debt and equity) in varying proportions just the way it is done for mutual funds. Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both based on their investment need and appetite. Just the way it is for mutual funds, ULIP policy holders are also allotted units and each unit has a net asset value ( NAV ) that is declared on a daily basis. The NAV is the value based on which the net rate of returns on ULIPs are determined. The ULIP NAV varies from one ULIP to another based on market conditions and the fund’s performance. Performance of ULIPs Performance of ULIPs ULIP is a market related instrument, and if the market does well so will be the ULIPs. However, research suggests that not all ULIPs have performed well and have given reasonable returns to the investors. Though the market is the primary reason for ULIP’s performance, it also depends on what charges and fees a ULIP deducts from your investments. The common charges are Premium allocation charge, Top up allocation charge, Mortality Charges, Fund management charge, Policy administration charge, switching charge and surrender charge etc. Besides, the surrender value is calculated as Fund Value – Surrender Charges, where fund value is Total no. of units under the policy NAV of the fund chosen. However, these charges are not same for all ULIP, some charge lower. Because of so many charges, the residual investment of any ULIP is not enough to give considerable return even if the market is doing well. Here lies the reason for dissatisfaction of investors like you, and you now want to get out of it. You, therefore, want to take such a decision. [Source: https://bestulipinsurancepolicy.wordpress.com/2015/08/26/should-you-continue-to-have-faith-in-your-ulip-policy-2/]

Monday 10 August 2015

Does investing in ULIP make sense?

Unit-linked insurance plans or ULIPs is an investment vehicle that offers dual benefit that is life cover and investment. The premium paid under ULIP is divided into two parts, where the first part goes toward cost of life cover, and the other is invested in funds.
 An investor has the option to choose from equity, debt or hybrid funds, where their premium will be directed. However, despite the dual benefits available under ULIPs, it was rejected by the investors lately due to higher charges, which were equal to one-year premium in many cases and lower returns. Such undisclosed charges resulted in a steep decline in the fund value of investors, who find it hard to recover the value due to poor performance of the product.

 Buy ULIP or Not

Apparently, Best ULIP Insurance Plan Regulatory and Development Authority (IRDA) took measures to clearly structure the ULIPs so as to make them more customer friendly. High agent commissions and charges were capped, after which ULIPs became more attractive to the customers. So is it sensible to buy one now? The answer could depend on the time horizon of the investor. That means that if someone is willing to remain invested for a longer term then ULIPs could be an answer.
 Generally Financial advisors recommend separating out the life cover objective with investment and hence, ask to buy a term insurance plan and invest into equity funds to meet the goal. But, if one is convinced to keep the two goals together then they could go ahead with the ULIP investment. A ULIP has a lock-in period of 5 years versus the 3 years lock-in period of equity-linked saving schemes (ELSS) from the tax perspective. Ideally, a ULIP held for more than 10 years could return higher profits over the period of time.

 Online Plans

Investors interested in ULIPs might have to struggle to get the right information now, given the scenario when agents are reluctant in selling ULIPs due to lower commission. However, one could get the information on an insurance company's site, and the option of buying an online ULIP plan is also available now for the investors.