Friday 29 January 2016

All About Unit Linked Insurance Plans

What are Unit Linked Insurance Plans?
A Unit Linked Insurance Plan is an insurance plan that offers you a life cover and is also an investment.
How does a ULIP work?
In a Unit Linked Insurance Plan, part of the premium that you pay goes towards mortality charges, similar to regular insurance policies. Here’s how it is different. The remainder of the premium is invested for you by the insurance company.
Personalized Investments
You can choose the investment units and the distribution of funds to match your needs. Don’t fancy high-risk investments? Take a deep breath. You can vary the levels of risk for your investments.

Additional Reading: ULIPs or Mutual Funds: Which is the better option?

What are my options?

There are four different fund options for Ulip Insurance India. Take your pick.

Equity Fund
Equity Funds are a high-risk investment options that distribute funds in shares. You can expect high returns from equity funds. Looking for wealth creation over the long term? An Equity Fund linked policy is ideal for you.




Balanced Fund  
A Balanced Fund distributes the premium between high-risk equity units and fixed interest units. Balanced Funds are a medium risk investment option because the risk is balanced between the equity units and the lower risk fixed interest units.

Debt Fund
A Debt Fund invests the premium that you pay into government securities, corporate bonds and various other fixed income investments. As a result, Debt Funds have a medium-risk level.

Money Market Fund
A Money Market Fund is a very low-risk investment option. In a Secure Fund ULIP, your funds are invested in cash and bank deposits. The expected returns are therefore relatively low.

If you are looking at ways to grow your money, a Unit Linked Insurance Plan may be a good investment for you.

You must remember that as ULIPs are market-linked investment products, you must be prepared to stay invested over a long term. The benefits you will get, accumulate during the duration of the investment.

But wait, if you’re still undecided about investing in Unit Linked Insurance Plans, we’ll help clear the confusion.

Additional Reading: Benefits of Unit Linked Insurance Plans

Demystifying Unit Linked Insurance Plans

We’ll banish some popular myths about Unit Linked Insurance Plans for you.

Unit Linked Insurance Plans are costly in comparison to other investment products.
Unit Linked Insurance Plans were costly some years ago because of the high premium and fund management charges. In recent years, ULIPs have seen several changes with respect to the charges and fund management fees.  and there has been a decrease in costs. You can get Unit Linked Insurance Plans that are competitively priced.

ULIPs are invested only in equity markets. They are risky.
Don’t be so hasty to dismiss Unit Linked Insurance Plans. With a ULIP you can decide the level of risk for your investments. There are different types of funds that you can choose from. You can also change funds to suit your evolving lifestyle.

[Source: https://blog.bankbazaar.com/all-about-unit-linked-insurance-plans/]


Tuesday 19 January 2016

How To Select The Best ULIP Insurance plan To Add To Your Portfolio ?

An ULIP is nothing but a Unit Linked Insurance Plan and as the name suggests it has got an insurance component and a growth concept to enhance wealth. Apart from this, investment in ULIPs gives you tax benefit under Sec 80C of the Income Tax Act. How are ULIPS structured? These give you savings, insurance and tax saving benefits. The best part is that they come with insurance. In terms of tax, they not only offer you tax benefits under Sec 80C, but, in the event of death of the holder, tax is not levied on the nominee.
Also, in the case of lumpsum return, the amount is not taxed. You can choose the Best Ulip Insurance plan  for you in a number of ways.
Here's how?
1) Identify your needs first First, see if you need an ULIP for retirement planning or for health related issues in the future or for your child's education. Since ULIPs invest money in stock markets, if your perspective is rather long-term go for in for one that is equity based. Unit linked Insurance Plans comes with various options and invest from zero per cent to 100 per cent in equities.
2) Debt Oriented ULIPs There are such units which invest the entire money in debt. So, this should be the first priority for those planning to retire or for those who are less risk averse or by nature who do not want to take risk.
 3) Go For a Balanced Plan You can also opt for a balanced plan, if you want to end-up being in between high risk and low risk. If you feel that the investment in the scheme should be less than 50% in equity make a choice accordingly.
4) Do Not Buy It For Insurance Do not Buy ULIPS for the sake of insurance. Remember, the protection may simply not be adequate for the purpose. Go in for a proper term insurance policy, if you wish to cover yourself with insurance. Also, do not use it as a primary means to save tax. Use it to meet a long-term objective like retirement or child education needs. Here is a list of select ULIPS in India. We are just providing a list and this is by no means a recommendation.





Thursday 14 January 2016

Should you continue your ULIP policy?


uulipLet’s look at the parameters on which you can evaluate your ULIP Policy and take a decision if you should continue paying the yearly premium, go for a premium holiday or surrender the policy.

Charges structure: ULIP Policies normally levy Premium Allocation & Policy Administration Charges. The extent of these charge vary in each policy. From the premium you pay premium allocation charges are deducted and net premium is invested in the fund as per options selected by you. Policy Administration Charges are normally levied on a monthly basis. If your policy was taken few years before, it is likely to be a high cost structure. Generally, if these charges are exceeding 1% of the annual premium, then it makes us uncomfortable and we normally raise a red flag.
Lock in Period: Normally most ULIPs come with a lock in period of at least 3 years. So even if your cost structure is high, but lock in period is not over, then you would need to continue the policy at least till the lock in period is over.

Surrender Charges: While you make a decision if you should continue your policy, please also have a look as to how much surrender charges you will have to incur. Your policy may have zero surrender charge after about 5 years. So based on the surrender charge currently being applicable, it may be a good idea to wait for a year or so and then surrender your ULIP policy.

Fund Performance: Your policy is costly but is your fund is doing well? If yes, then you may end up with a positive ROI, depending upon market situations. If your policy is costly and the fund is not doing too well, then this may further worsen the situation. Please also check if your funds are invested appropriately mapped to your risk profile? Say if you are in early 30’s and have 5+ years to go before this policy matures, then it’s likely to be a good idea to invest a major part of your fund corpus in this ULIP in Equity. Most ULIPs allow 4 fund switches free in a year. So you could accordingly switch your funds

Insurance Cover: Do you still need the Life insurance cover available in the best ULIP insurance plan? Your Life Insurance corpus is a function of your financial liabilities. If you have sufficient assets to take care of your financial liabilities, then you may not need a life insurance cover. On the other hand, if you have a sizable cover in the ULIP policy, then you should check your overall need of Life insurance and assess if you will be able to get a new life insurance cover. If you have a medical situation (e.g. Diabetes) then getting a new cover may be difficult or expensive.

Expected benefits: Some ULIP covers give Sum Assured+ fund value. Some ULIP covers provide Highest NAV guarantee. Some ULIP covers have a premium continuance option i.e. the policy continues even if you die mid-way, no further premiums are to be paid and the policy cash flows are paid to the nominee. Some ULIP covers provide additional benefits like 102% premium credit after 10 years. Some ULIP covers allow you to take a loan against fund value. So, please consider such factors while you make a decision to continue or surrender the policy.

If you do happen to take a decision to surrender or go for a premium holiday, then please communicate your decision in writing to your Insurance Company, fill up required forms and follow up with them to get a confirmation response. You may seek help from the Advisor or Customer Support Executive from the Insurance company to guide you while you make this decision though they may be biased in you continuing their policy. Alternately, you can consult your Financial Planner.

Source: http://www.gettingyourich.com/blog/should-you-continue-your-ulip-policy

Monday 11 January 2016

Why You Need ULIPs to Supplement Your PF and PPF Investments

Are you relying too much on your provident fund (PF) and Public Provident Fund (PPF) investments for your own good?

Your confidence maybe misplaced. Here’s why.

The PF savings myth If a 35-year-old person earning a monthly basic salary of Rs.25,000 saves uninterrupted for the next 25 years, with wages increasing every year by 10%, he would save only Rs. 24.35 lakh*. Since many employers deduct 12% of the entire basic amount, even then he would end up with Rs 1.58 crore* of retirement corpus and a monthly pension of Rs 5,375 against the requirement of a corpus of Rs. 3.67* crore to last for 20 years into retirement. This is assuming a monthly expense of Rs.30,000 and annual inflation of 7%*. In short, the person will end up with a shortfall ofRs.1.09 crore.
These numbers have to be seen in the background that very few people make uninterrupted contribution to EPF, or PPF for that matter, till their retirement. A majority of people make premature withdrawals during home-buying, medical emergencies, child’s higher education and wedding and, so on. This means the shortfall is our case is likely to be even more. Clearly, relying only on EPF savings is insufficient to lead a care-free life in the future.
Section 80C limits constrain PPF savings:

Theoretically, you can annually invest uptoRs. 1.5 lakh in PPF. But most people don’t since there are other items that also qualify for this deduction, be it home loan principal repayment or child’s tuition fee. Even when you can save a higher amount, you might be tempted to not do so beyond the available Section 80C amount, like most people.

How inflation devours growth of PF and PPF savings:

Since 2005-06, the annual return of EPF has been ranging between 8.25% and 9.5%, while annual interest rate offered on PPF has ranged between 8% and 9.5% during the same period. Elsewhere, the average annual retail inflation during 10 years period till December 2014 was 8.35%**.


However, since you need a substantial amount to fund your different future needs and help you lead a carefree life, you need an investment where your money’s growth runs far ahead of inflation. This is where investment in equities comes to the picture.

Enter equities investing through ULIPs:


*Business Standard, November 23, 2014, ** Average of annual CPI number reported by World Bank.


Wednesday 6 January 2016

Why traditional insurance plans will beat ULIPs during the tax-saving season

Most ULIPs (unit-linked insurance plans) are far better compared to traditional insurance plans. They are more flexible, more transparent and have the potential to generate bigger returns. But insurance sales do not necessarily follow simple logic. There are a variety of reasons why traditional plans are likely to fare better.

ULIPs are saddled with bad reputation:
A few years back, the older version of ULIPs received a certain amount of bad press, all for legitimate reasons. The product design was terrible, the charges were high, commissions we heavily front-loaded – all of which resulted in customers realising that their ULIPs lost a lot of value when the stock markets crashed. This led to a large number of complaints and companies hurriedly shifted their portfolios to opaque traditional plans.
The new version of ULIPs is far better as charges are now almost comparable to mutual funds and they offer much more flexibility. But it will take some more time before customers come back in large numbers.
Majority of customers are still conservative investors:
Not everyone is a stock market expert. Not everyone wants to realign their investments based on market movements. No matter how financially literate people are, the comfort of low but steady returns is still preferred by many. And yes, the opaqueness of products and their lack of flexibility can be an advantage in certain cases if you want investors to stay put for a long period.
Focus area of insurers:
A majority of life insurance products are still sold by agents and brokers in the offline world. And since life insurance is commission-driven product, agents will push traditional plans because they get more commissions from them. Also, ads rolled out during the tax savings season will mostly be on traditional plans.
My take:
If you are buying insurance only for tax benefits, ensure that your purpose is being met by the policy. Not all single premium plans meet the tax criteria, so don’t blindly buy life insurance. If you can track your investments every quarter, realign your investments and stay invested for a ten-year period. And yes, ULIPs Insurance India will provide better returns.