Benefits of ULIPs

Unit Linked Plans offer unique opportunity to combine protection with investments. Some special features of Unit Linked Life Insurance Policies (ULIPs) are:

Provides flexibility in investments ULIPs offer a complete selection of high, medium and low risk investment options under the same policy. You can choose an appropriate policy according to your risk taking appetite, coupled with the opportunity to switch between fund options without any additional expense for specified number of switches. ULIPs provide the flexibility to choose the sum assured and investment ratio in the annual targeted premium. It also offers the flexibility of one time increase in investment portfolio, through top-ups to avail investment opportunity offered by external environment or own income flows.

Transparency The charge structure, value of investment and expected IRR based on 6% and 10% rate of returns, for the complete tenure of the policy are shared with you before you buy a product. Similarly, the annual account statement, quarterly investment portfolio and daily NAV reporting, ensures that you are aware of the status of your investment portfolio at all times. Most companies publish latest NAVs on their respective websites on a daily basis.

Liquidity To cope with unforeseen circumstances, ULIPs offer the benefit of partial withdrawal; wherein after 5 years you can withdraw funds from our Unit Linked account, retaining only the stipulated minimum amount.

Disciplined and regular ULIPs help you inculcate a regular saving habit. Also, the average unit costs tend to be lower than one time investment.

savings

Multiple benefits bundled in one product ULIP is an outstanding solution for risk cover, long term investments with the benefit of various investment opportunities, coupled with tax benefits.

Spread of risk ULIPS are ideal for those investors who wish to avail the benefit of market linked growth without actually participating in the stock market, with the added benefit of risk-cover.

ULIP is an abbreviation of Unit Linked Insurance Plan. Definition- ULIP is a combination of insurance & investments. Unlike traditional subject to the risk factors where the risk is borne by the policyholder, the investment risk is related with the stock markets & accordingly the NAVs of the units go up & down depending upon the funds performance & the factors affecting the capital market. Different funds offered by ULIP General Description Nature of investments Risk Category

Equity funds Income, fixed deposits & bond funds Cash Funds Balanced Funds

Investing in companies stock. Investing in Government securities & in

Medium to high Medium Low Medium

corporate bonds.
Investing in cash, bank deposits &

money market Combination of equity investment& fixed interest instruments

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Advantages of taking ULIP

   

Provide life cover. Tax saving under 80CC. It also gives you opportunity to invest in stockmarket. Gives you the option of long term investment too.

Basic Charges on ULIPs

      

Premium Allocation Charges- It normally includes initial & renewalexpenses apart from commission expenses. Mortality Charges- This charge is provided for the Cost of Insurance Coverageunderthe plan. A lot of factors are responsible for mortality charge like age, amount of cover etc. Fund Management Fees- These are fees levied for management of the funds and are deducted before arriving at the Net Asset Value(NAV) Policy/Administration Charges- These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate. Surrender Value Charge - A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. Fund Switching Charges- Limited fund switching charges may be allowed every year. Service Tax Deduction-Before allotmentof the units the applicable service tax is deducted from the risk portion of the premium.

Things to remember before going for a ULIP

  

Invest for a long term-A long term investment will give you good results. Be sure about the charges- Make sure about the charges that the company will take from you. There should not be any hidden cost. Invest at your own risk- Investing in ULIP is also risky, you should check your risk appetite beforeinvesting.

ULIP plans bring many benefits which are not available in traditional insurance products such as partial withdrawal, lock in for only 3 years, high return, flexibility to choose insurance cover, top-up facility, fund options. There are some advantages of ULIP plans:-

1) Partial withdrawal Unlike traditional policies, most of the ULIP policies enable the policy holder to withdraw part of his investment after 3 years. It helps a lot for the investor as they can off- load their money according to your requirements. 2) Lock-in for 3 years only In traditional insurance policies, one has to pay high surrender charge if they want to discontinue it. However, many ULIP policies can be discontinued after 3 years. These policies can a) Stop paying premium and keep money invested to get all the benefits. b) Withdraw entire amount (As per current value) with no or little surrender charge. For investors who review their investment periodically can take this opportunity to check if their investment is going in the right direction or not and is giving the expected return? 3) High returns No insurance plan can match the return of ULIP in the long period but at the same time this return is not guaranteed and you may even receive the amount which is less then what you have invested. 4) Multiple payment options (regular premium such as SIP, single premium, Top-up) ULIP policies also allow various payment methods such as single premium, regular premium payment. It works similar to SIP additionally that enable you to invest additional amount at your convenience in the form of Top-ups. 5) Flexibility to choose insurance cover This is also one of the most important features of ULIP plans. In traditional policies, you select the Sum Assured based on which you pay your premium but in ULIP plans, you are flexible to choose your Sum Assured let whatever be your premium. Most of ULIP plans also allow you to increase or decrease risk cover as per your requirements. 6) Option to choose Rider An individual can also opt for rider available to ULIP plans and he will be charged only on the opted riders. 7) Cooling of period Unlike mutual fund, ULIP also enables the policy holder to withdraw your money (after deducting processing charges by insurer) 15 day from issue of certificate, if you are not satisfied with rules and regulations. 8) Flexibility to choose fund options All ULIP plans provide the number of fund that depends on your risk taking capacity. You can also select the fund type depending on your choice of high growth or lesser risk. 9) Free Switches Free Switches allow you to move your money from high risk fund to low risk fund and vice versa that depends on the market condition and your risk taking capacity. 10) Tax benefit If you invest money in ULIP, you will also get some rebate in Income tax.

Disadvantages
Below are the main reasons that can keep investors away from this product:

There is nothing stopping the fund manager from having a substantial debt component even in the earlier years, as the mandate in such products is that they can hold 0-100% in Debt or equities.

  

Those thinking that they will participate in the upsides of the Equity market will be disappointed as this category of product assures highest NAV of the fund itself. This then turns out to be a product that has a fairly long maturity at least 3 years or more. For a return that is expected to be somewhat higher than a debt product, locking in for long periods makes no sense. Guarantee of highest NAV is applicable only at maturity, not otherwise. This clause immediately makes the product less attractive as it is a long duration product. Any withdrawals in between for any exigencies, beats the whole purpose of investing in such a product.

What is a ULIP? A United Linked Investment Plan (ULIP) is an instrument which combines the security provided by an insurance plan with the opportunities provided by an investment plan. What are its features? In ULIPs, a part of the investments made by the investor is used to provide life cover to the investor and the remaining amount is used to make investments in a unit fund. The allocated (invested) portions of the premiums after deducting 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 a component of the Fund in a Unit Linked Policy. As in mutual funds, investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. The value of investments made in the ULIP alters with the performance of the underlying fund opted by you. ULIPs also offer features that no other investment instruments offer. ULIPs offer features such as:

y y y y y y

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 ULIPs also provide you with tax benefits. ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds true, irrespective of the nature of the plan chosen by the investor. What are the types of funds offered in a ULIP? The majority of insurers offer a number of different funds to suit an investors financial objectives, risk appetite and time objectives. The risks associated and the amount of returns associated with each type of fund is different. The most common funds offered are:

y y y y

Equity Funds Income, Fixed Interest and Bond Funds Cash Funds Balanced Funds What aspects of ULIP should you watch out for? When you look at the approved sales brochure before taking up a ULIP policy you should keep an eye out for the following details:

All the charges deductible under the policy

y y y y y y

Payment on premature surrender Features and benefits Limitations and exclusions Lapsing and its consequences Other disclosures Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council Are ULIPs good for long-term investment or short-term investment? ULIPs are considered to be better for long-term investments because of the following reasons: Higher product costs in the initial years ULIPs have higher costs associated with it in the initial years because of charges which go towards the policy charges. Also, market fluctuations will tend to provide lower amount of returns as the amount invested would be slightly lesser in the first couple of years of the policy. 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. Market Fluctuations Market fluctuations can hamper returns in the short-term. However, 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 6-10 years. What is better? ULIP or Term Insurance? The answer to this question lies in the expectation we have from our insurance plan. If our objective of investing in an insurance plan is only to provide life cover the term insurance makes sense. However, with term insurance, at the end of the policy term is reached in your lifetime, you get no returns. Essentially, all the money that you have paid towards the premium gives you no return. However, if the same investment was down in a ULIP, you would have life cover as well as a sizable amount of returns. What are the advantages and disadvantages of ULIPs? Advantages Flexibility - you can choose your term, insurance cover, pay premiums for a limited period Transparency - you know what is the amount you are paying for the various benefits

Disadvantages Flexibility - this can act a disadvantage since the person may use the withdrawal and may not end up building a huge corpus Initially heavy costs You pay around 15-40% for the first year and then around 5%for the next two years

Tax free returns 100% tax free since they are received from No control on costs insurance and it is a contract Switch between various options Tax benefits when investing under Sec 80C One may try to time the market and may make errors