Sie sind auf Seite 1von 25



Growth of

Working of ULIPs
Advantages of ULIPs
Servicing a unit linked plan
Verification before signing the proposal
Comparison of Unit linked plans versus traditional plans
Comparison of Unit linked plans versus mutual funs
Types of ULIPs
Features of ULIPs
Growth of ULIPs in India


-Sum Assured-wise

Surrender Rate of ULIP Policies
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life
insurance policy which provides a combination of risk cover and investment. The
dynamics of the capital market have a direct bearing on the performance of the

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.

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.

In Unit Linked Plans, the investments made are subject to risks associated with the
capital markets. This investment risk in investment portfolio is borne by the policy

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, 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 the
policy's tenure.
The ULIPs were introduced in 1960s and they are popular in many countries
including India.

India’s first ULIP was issued by UTI and LIC. The investment was by UTI and
insurance part covered by LIC.

The industry was open in 2000 and the life insurance companies started selling
ULIPs. There was a boom in the share markets between 2005-2008 and during this
time the ULIP’s products outperformed the mutual funds because of the combined
benefits of insurance and investments and marketing strategies of the companies.
At present, an estimated 70% of the new business premium for most insurance
companies comes from the Unit Linked products.

After SEBI barred front loads on mutual funds in August 2009, MFs have been
complaining that insurers’ agents are luring away customers looking for market
investments. These agents receive higher front-end commission than what MFs’
agents are allowed.

Another main issue with ULIPs is of mis-selling, where the agent does not tell the
policyholder that he stands to lose if he does not renew his policy annually. Also,
in some policies, the returns are back-ended in the form of an assured loyalty
bonus in the last year. If this is not communicated to the policyholder and he
withdraws early, he stands to lose substantially.

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 April 9, 2010, SEBI whole time member Prashant Saran passed the order
putting a ban on ULIP products by these 14 insurers.
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 on a periodic (mostly monthly) basis by cancellation of units,
whereas the ULIP fund management charges are adjusted from NAV on a daily

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:
The allocated (invested) portions 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.

It is a component of the Fund in a Unit Linked Policy.

ULIP: Insurance versus

The purpose of buying an insurance policy is that if the policy holder dies, the
family is assured of certain amount. Since ULIPs are market Linked, there is
uncertainty in this benefit and the ULIPs may defeat this benefit. In case of
untimely death of a customer, the family is entitled to get the higher the sum
assured or the market value. Then there are many variants of these schemes which
guarantee cover five times or two times of initial premium or so on. There are
many ULIP pension plans which don’t give any cover or sum assured.

Apart from this, the costs are deducted from the units and returns get reduced
because of the reducing units. Even in the situation of good market conditions the
and higher NAV, the benefit is reduced because of the unit associated costs.

ULIP: Good versus Bad:

In India the investments in ULIPs is covered under section 80C of Income Tax
Act. In ULIP products Fund managers get more time to hold stocks because of the
lock-in period and there are negative points for customers such as high costs like
premium allocation charge, policy administration charge, and mortality rate.
Besides, the benefits under Section 80 C go away if the holder surrenders the
policy within 3 years.
• Market linked returns: Unit linked plans give an opportunity to earn
market-linked returns as part of the premiums are invested in market linked
funds which invest in different market instruments including debt
instruments and equity in varying proportions.
• Life protection, Investment and Savings: Unit linked plans offer the twin
benefits of life insurance and savings at market-linked returns. Thus, there is
an opportunity to invest money to earn higher returns, while taking care of
protection needs of the investor. Investing in unit linked plans helps to
inculcate a regular habit of saving and investing, which is important for
building wealth over the long term.
• Flexibility: Unit Linked Plans offer you a wide range of flexible options
such as -
o The option to switch between investment funds to match your
changing needs.
o The facility to partially withdraw from your fund, subject to charges
and conditions.
o Single premium additions to enable the policy holder to invest
additional sums of money (over and above the regular premium) as
and when desired, subject to conditions.
• Single Premium: The policy holder is required to pay the entire premium
amount as a lump sum at the beginning of the policy term.
• Regular Premium Payment (annually, semi-annually or monthly): The
policy holder has to pay the pre-determined premium amount periodically
i.e. annually, semi annually or monthly, depending upon the premium
payment term opted for.
• Number of Premium Paying Years: This depends on the term of the policy
that you have chosen. In most cases, the policy term and the number of
premium paying years (in case of regular premiums) are the same. However,
some policies give the insured the option of choosing the number of
premium paying years.

One has to verify the approved sales brochure for
• all the charges deductible under the policy
• payment on premature surrender
• 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.
Unit Linked Insurance Plans Conventional plans


Description Unit Linked Insurance Plans Conventional Plans are traditional

offered by insurance insurance plans. They usually invest
companies allow policy holdersin low risk return options and offer
to direct part of their premiums guaranteed maturity proceeds along
into different types of funds with declared bonuses.
(equity, debt, money market,
hybrid etc.) Here the risk of
investment is borne by the
Key Features

Flexibility of investment: Unit Linked Plans give you These plans do not allow you to
flexibility to invest as per your choose investment avenues. Your
risk profile, financial funds are invested as per the
commitments and convenience. strategy and discretion of the
You can choose to invest either company.
in equity, or in debt or in
hybrid fund and even change
your investment strategy.
Transparency: Most Unit Linked Plans allow Your premiums are invested in a
you to track your portfolio. common 'with profits' fund and
They also regularly intimate therefore you cannot track your
regarding the percentage of the individual portfolio.
premium that is invested along
with the charges levied. You
are also kept informed about
the value and number of fund
units that you hold.
Maturity benefits payout: At the time of maturity you At the time of maturity you get the
redeem the units collected at sum assured plus bonuses, if
the then prevailing unit prices. applicable in the plan.
Some plans also offer you
loyalty or additional units
annually or at the time of
Partial withdrawal: Unit Linked Plans allow you to Conventional plans do not allow
make withdrawals from your you to withdraw part of your fund.
fund, provided the fund does Instead, some policies offer you the
not fall below the minimum facility to take a loan against your
fund value and subject to other investment.
Switching options: Available. You can change Not available since the the
your investment fund decision investment decision is taken by the
by switching between the funds insurance company.
as being offered by the policy.
Charges structure: Unit Linked Plans specify the These plans do not specify the
charges. under various heads. charges involved.
Single premium Top-up Available. The single premium The top-up facility is not available.
top-up facility allows you to
invest an extra amount over
and above your regular
premiums in your unit linked
Benefit Snapshot • Unit Linked Plans • Conventional plans offer
give you flexibility of fixed premiums linked to
investment the sum assured.
• They allow you to
track your portfolio. • The maturity benefits for
• Unit Linked Plans these plans include the sum
offer the benefit of a assured plus bonuses, if
single premium top up applicable
which allows you to
invest ad hoc
additional amounts
• Unit Linked Plans
allow partial
withdrawals, subject
to conditions and
switching between
funds by paying some
charges, if necessary.

• Unit Linked Plans

give you the option of
a premium vacation.
Unit Linked Insurance Plans Mutual funds

Description Unit Linked Plans refer to Unit Linked A mutual fund pools the money from
Insurance Plans offered by insurance investors and uses it to invest in
companies. These plans allow investors various securities according to a pre-
to direct part of their premiums into specified investment objective.
different types of funds (equity, debt,
money market, hybrid etc.)

Key Features
Objective: Unit Linked Plans are long term plans Mutual funds are ideal investment
offering you a dual benefit of insurance tool for the short to medium term.
and investment.
Tax Benefit: All Unit Linked Plans offer tax benefitsOnly investments in tax saving funds
under section 80C. are eligible for section 80C benefits.

Switching Unit Linked Plans allow you to switch No switching option is available. If
options: your investment between the funds you are not satisfied with the
linked to the plan. This enables you to performance of the fund you can exit
change the riskreturn. completely from the same by paying
exit charges, if applicable.
Additional Some of the Unit Linked Plans give There are no additional benefits
Benefits: you an additional benefit or loyalty issued by mutual funds.
benefit by issuing extra fund units.
Liquidity: Unit Linked Plans have limited You can easily sell mutual fund units
liquidity. One needs to stay invested (except for ELSS and funds that have
for a minimum period of time as a minimum lock-in period)
specified in the policy before
redeeming the units.
Charges Charges in a unit linked plan include Mutual fund charges include an entry
structure: mortality charges for the life insurance load, the annual fund management
provided. In addition, premium charge and an exit load, if applicable.
allocation charge, fund management
charge and administration charges are

Benefit Snapshot: • Dual benefit of investment • Investment tool suitable for

and insurance short to medium term.
• Suitable for the long term • Easy exit possible.
• Option to switch between the
funds is permitted. • Tax benefit available only
on tax saving funds
• Offers tax benefits

• Administration charges: A fee is charged for administration of your policy
every month. Administration charges are deducted by cancelling units
proportionately from each of the funds you have chosen.
• Fund management charges: These charges are towards meeting expenses
related to managing the fund. This is charged as a percentage of the fund’s
value and is deducted before arriving at the net asset value of the fund.
• Switch charges: You can switch between the funds available to suit your
changing needs and goals. In a policy year, a fixed number of such switches
are available free of cost. Subsequent to this, each switch would attract a
certain charge. These charges are deducted by cancelling units
proportionately from each of the funds you have chosen.
• Surrender charges: These charges are levied for premature encashment of
units. They are charged as a percentage of the fund value and depend on the
policy year in which the policy has been surrendered.
• Mortality Charges: Depending upon the age, and the amount of cover,
these charges are levied towards providing a death cover to the insured.
• Premium Allocation Charge: This charge is deducted as a fixed percentage
of the premium received, and is usually charged at a higher rate in the initial
years of a policy. This charge varies depending upon whether the policy is a
single premium or regular premium policy, the size of the premium,
premium frequency and payment mode.
• Partial Withdrawal Charges: Lump sum withdrawals are allowed from the
fund after the lapse of three years of the policy term and subject to pre-
specified conditions. However, such withdrawals attract charges, as
mentioned in the respective policy brochures.


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 offer a transparent option for customers to plan their various life stage needs
through market-led investments as compared to traditional investment plans.

Insurance cover plus savings

ULIPs serve the purpose of providing life insurance combined with savings at
market-linked returns. To that extent, ULIPs can be termed as a two-in-one plan in
terms of giving an individual the twin benefits of life insurance plus savings. This
is unlike comparable instruments like a mutual fund for instance, which does not
offer a life cover.

Multiple investment options

ULIPs offer variety than traditional life insurance plans. So there are multiple
options at the individual's disposal. ULIPs generally come in three broad variants:

• Aggressive ULIPs (which invest 80%-100% in equities, balance in debt)

• Balanced ULIPs (invest around 40%-60% in equities)

• Conservative ULIPs (invest up to 20% in equities)


Individuals can switch between the ULIP variants outlined above to capitalise on
investment opportunities across the equity and debt markets. Some insurance
companies allow a certain number of free' switches.

Systematic Investment Plan

With SIP, individuals invest their monies regularly over time intervals of a
month/quarter and don't have to worry about `timing' the stock markets


The Insurance Regulatory and Development Authority (IRDA) has issued
guidelines on unit-linked insurance products (ULIPs) Under the guidelines:

1. The minimum policy term for ULIPs will be five years

2. All ULIPs would be expected to have an insurance cover payable on death.
3. The pension/annuity products would need to have insurance cover.
4. No loans would be allowed under ULIPs and
5. A partial withdrawal in the ULIPs would be allowed only after the fifth year
of policy.
6. However, there would be no partial withdrawal for pension/annuity


India Has Seen A Tremendous Growth On The Unit Linked Front Over The
Recent Years. The Growth Has Been Fuelled By The Booming Stock Markets &
Lower Interest Rates. Before The Introduction Of The Unit Linked Product, The
Prospects/Policyholders Who Are Interested In Investing In Stock Markets Either
Had To Purchase The Stocks On Their Own In The Primary/Secondary Or Invest
In Mutual Funds. With The Introduction Of The Unit Linked Product , The
Prospect Has An Option To Invest In The Stock Market Via Purchase Of A Unit
Linked Life Insurance Policy In Addition To The Life Insurance Cover. A Unit
Linked Policy Scores over Mutual Fund via Tax Advantages and Life Cover (Now
Sips Can Offer Life Cover as Per Recent SEBI Guidelines).

The Graphs below Shows Group-Wise Comparison of Unit Linked and Non-
Linked Products and Their Contribution to the Total Premium in the Year 2008...

As Per The Graph Below, Group 1 Which Has 16.2% Linked & 23.1% Non-
Linked Of The Total Products Contribute 38.64% & 52.54% Respectively To The
Total Premium Which Sums To 91.18% Of The Total Premium.
It Is Also Observed That Linked Business Is A Major Contributor To The Total
Premium For Most (15) Of The Companies.
The Graph Above Shows How The Unit Linked Policies Progressed Policy Wise
(Year On Year) Across Groups. As Can Be Seen From The Graph, Group 1 Is A
Major Contributor To The Total Number Policies In Both Linked & Non-Linked
Business. However, Group 1’s Share in the of Total Linked Policies Increased in
the Year 2006-07 But Has Decreased Marginally In The Year 2007-08 While
Group’s 2 & 3 Has Shown The Reverse Trend.

The Graph Above Shows How The Unit Linked Business Progressed SA Wise
(Year On Year) Across Groups. As Can Be Seen From The Graph, Group 1 Is A
Major Contributor To The Total SA In Both Linked & Non-Linked Business.

The Share Of Group 1 Which Was 60.09% Of The Total Linked SA In The Year
2006 Grew To 72.83% In The Year 2008 While The Shares Of Groups 1 & 2
Which Were 32.35% & 7.56% Fell To 19.65% & 7.53% Respectively.


The truth in the present day insurance market in India is that Unit Linked Insurance
Policies [ULIP] are selling well. Life Insurance Corporation of India [LIC] has
launched seven plans in Unit Linked. LIC’s ULIP premium accounted for 45% of
new business premium from individual policies.

ICICI total premium income is predominantly through ULIPs accounts for 60% of
the cumulative premium income for the company.

Birla Sunlife sells only Unit linked plans, recorded 189% growth in its new
premium income.

Bajaj Allianz life sold 75% of the company’s policies only in ULIPs in the
beginning of the quarter.

Likewise, HDFC Standard Life, AMP Sanmar Life, Tata AIG Life, have also seen
the sale of their ULIPs outgrowing the traditional life insurance products.
ULIPs are a victim of honesty and a flawed selling process. There is no
transparency and the front-load is never conveyed by the agent to the customer.

Market-linked returns have become the norm today. This is the reason why
insurance companies launch unit-linked plans in different avatars. Important
segments of the consumer market no longer consider life insurers as competing
only with other life insurers. In an effort to gain market power and thereby to
protect or enhance profitability the issue of product development and innovation,
including pricing and marketing innovation, is all the more important with the
continued convergence among financial service competitors.

If we observe the trend of ULIPS in insurance market, after the insurance sector is
opened, private players, came up with aggressive marketing strategies to establish
their presence. And the public sector has, in its turn, redrawn its priorities. It is
quietly being carried out at LIC. “Till last year, we used to do our budgeting for
individual plans. But from the beginning of this year we are doing it at the
cumulative level,” says Ashok Shah, Zonal Manager [North Zone], LIC in a Ficci-
organized insurance seminar in October last year. “This new exercise has helped us
in prioritizing the sales of individual plans according to the market needs,” he adds.
Accordingly, as already discussed the Buoyant growth in these plans may be due

Rising stock market – Enticed by the Bull Run, policyholders are putting in more
than the actual yearly premium as they top up the investment portion of their risk
Falling interest rates [The last five years saw interest rates fall dramatically by
400 basis points.]
Wider product offerings by the insurers [ex. Endowment plan, pension plans etc.]