ULIP helps get to long-term goal

Mahesh earns Rs 10 lakhs per annum. Categorized as high risk customer with work involving extensive travel, Mahesh has little time towards investment planning. Due to the risky nature of his work, he knows it is important to own a risk cover to benefit his family. He needs to save enough money to meet his children's higher education and marriage expenses.

Perhaps, Mahesh should consider a unit-linked insurance plan (ULIP). These are investment products bundled with an insurance component. These products are ideal to achieve long-term goals for investors who have little time to manage their finances.

Here are some features that make ULIPs a class apart from other instruments:

Long tenure products

Investors can systematically invest in ULIPs at periodic intervals where the investor benefits from rupee cost averaging. To ensure that ULIPs are treated as long-term insurance products, the Insurance Regulatory and Development Authority (IRDA) has increased the lock-in period for ULIPs from three to five years. The lock-in period of five years affects its liquidity coordinate.

Further, a host of charges are deducted from the premium component and also the fund value. Since these products are burdened with high quantum of front loads, it only makes sense to stay invested for longer tenures. Otherwise, these charges can eat into your returns.

Flexibility

The life cover component of ULIPs that a nominee receives is the higher of the fund value and sum assured or both, in the event of unfortunate death. The investment component of ULIP can be in debt, equity or a mix of both according to the risk appetite of the investor.

As one ages the insurance needs change and ULIPs take into account this need. Investors have the option to increase or decrease the extent of protection over the term of the plan. One can also pep up the insurance component by including critical illness riders.

You can top up the existing fund value whenever you choose to. Usually, ULIPs also allow fund houses to switch between funds at no extra fees in the form of switching costs. Since these are long-term investment products, it makes more sense to have a greater exposure to equity than debt. ULIP products with debt concentration with their relatively lower returns, can succumb to inflation risk in the long run.

Tax benefit

ULIP products qualify for tax deduction. The returns are tax-free after the five year holding period.

Choose ULIP with potential

Though ULIPs can boast of achieving long-term financial targets, you must exert caution when selecting the scheme. Nobody can truly predict the economic climate, inflationary pressures and market conditions over a distant future. Carefully select an asset mix that is not only in sync with your risk appetite but also has the potential to generate good returns in the long run.

Before buying any ULIP product, get to know the various charges and fees. Any penalty like premature redemption charges must not come as a surprise to you later. Finally, if you have good financial discipline and the time, build a portfolio of insurance cover, handpicked equity funds and retirement products such as PPF.

ULIPs lose polish for investors insurance companies equity holdings plunge

Equity investments by insurance companies plunged to less than a tenth as policyholders surrendered some unsuccessful old ones to shift to more attractive new products, and regulatory changes took sheen off the unit-linked plans.

LIC missed its annual target of buying shares by a huge margin as policy surrenders jumped more than three-fold during the year. Insurance industry's net investment in equities tumbled to Rs 3,138 crore in the fiscal 2011, from Rs 34,809 crore a year earlier, data from the Securities & Exchange Board of India show.

"Drop in equity investments is because of lower inflows, people are moving towards traditional plans," said Prashant Sharma CIO of Max New York Life. Insurance companies are hit by lower flows into once famous unit-linked insurance plans (Ulips) that had an option to invest a huge corpus into equities unlike traditional insurance plans, where the regulation forced more debt holdings.

Flows into ULIPs fell due to a longer lock-in period that deterred investors and lower incentives made distributors' interest wane. At the beginning of the fiscal year, LIC said it would invest up to Rs 75,000 crore. "Surrenders in the industry is high,'' says Bajaj Allianz chief investment officer Sashi Krishnan. "Policyholders are surrendering from their existing policies or not paying renewal premium as the new set of guidelines is better."

SBI Life's chief investment offer Abhijit Gulanikar said that the increase in surrender has reduced the net investment of the industry in equity. SBI Life had seen policy surrenders of over Rs 1,000 crore. The new guidelines on Ulips that were issued by the Insurance Regulatory and Development Authority (Irda) had capped the surrender charges that one needs to pay while withdrawing from a policy.

The policy had come in force since September 2010. "Insurers are focusing more on single premium and guaranteed products. In these cases, the equity component is not high," said Krishnan. Earlier, there was no cap on surrender charges and companies levied up to 100% at the time of surrender.

The lockin period has been increased to 5 years. Therefore, people are not renewing their existing policies. While all 100% premium can be invested in Ulips, policyholders have the option to choose between the funds and the proportion. In the case of traditional products, with opaque investment plans, the insurance regulator regulates investment norms.

SBI launched New ULIP – Smart Wealth Assure

SBI Life Insurance launched a unit linked plan -- Smart Wealth Assure-- aiming to provide guaranteed fixed returns to the policyholder.

Smart Wealth Assure guarantees at beginning a pre-specified NAV applicable at the end of the 10-year term, SBI Life said in a statement.

SBI Life Smart Wealth Assure is a single premium plan and offers policyholders optional Accidental Death benefit and partial withdrawal ability from 6th policy year onwards.

The scheme would be available at a minimum amount of Rs 50,000, and would cover policyholders from 8 years to a maximum 65 years of age with a policy term of 10 to 30 years.

With launch of Smart Wealth Assure, SBI Life now has a bouquet of eight Ulips catering to the long-term wealth creation and life insurance needs of different customer segments.
"Our aim is to assemble a large and attractive suite of Simple and Smart products so as to allow our customers to choose relevant solutions that best meet their needs, aligned to their income and risk profile," SBI Life Insurance MD & CEO M N Rao said.

The fund would provide guaranteed fixed returns, which provide the policy holder to choose for either of equity fund or P/E Managed Fund or Bond Fund, it added.
Usually the Return Guarantee Fund aims to provide guaranteed fixed return by investing mostly in fixed income securities, namely debt instruments.

As of January, 2011, SBI Life''s market share among private life insurers stood at 18.9(%) per cent, while it was 5.6(%) per cent when it came to total market share.

ULIPs to get costlier with boost in service tax

The projected increase in the service tax on life insurance products will make both traditional and unit-linked insurance plans, or Ulips, more expensive. The industry expects the costs to go up by 50-75 basis points (one bps = 0.01%).

Although companies are yet to figure out the crash of the proposed increase, most insurance executives said premiums may go up by as much as 75 basis points.

"Policies are going to get costlier with the increase in service tax. While traditional plans will cost nearly 50 basis points more, Ulips may see a 75 basis points increase," said SB Mathur, secretary general, Life Insurance Council.

The budget for FY12 has proposed a 50(%) per cent increase in service tax for traditional plans - where investments from the premium collected are made as per the regulatory rule. Currently, policyholders of traditional endowment or money back plans need to pay 1(%) per cent of the total premium as service charge.

In Ulips, where the policyholder chooses the investment mix (how much to put in equity or debt), the service tax will be charged on the portion of the premium not allocated for investment, like premium allocation and policy administration charges. At present, the service tax is only on humanity and fund management charges.

"This taxing of the allocation charges and policy administration charges will affect the yield, and we imagine at least 20-25 bps reduction in yield for the policyholder," said G Srinivasan, CFO, Bharti Axa Life Insurance.

A senior executive of a life insurance company said efforts made by the Insurance Regulatory and Development Authority, or Irda, to increase the returns for policyholders by capping the charge will get neutralized to an extent.

Insurers, however, are not clear whether the service tax will be part of the 3(%) per cent cap on the total charges.

Last year, Irda had put a cap on various charges, including surrender and fund management charges. The difference between the gross and the net yield is capped at 3(%) per cent for policies with less than 10 years of maturity; for policies with a maturity of more than 10 years, the difference is capped at 2.25(%) per cent.

P Nandagopal, managing director of IndiaFirst Life Insurance, said there is no clarity on whether the service tax will come under the charges prescribed for Ulips. "In case it is outside the 3(%) per cent cap, the premium will go up for policyholders. If it is within the prescribed cap, insurers will have to control expenses well."

"The increase in service tax will increase the cost of insurance for policyholders," said GV Nageswara Rao, managing director and CEO of IDBI Federal Life Insurance Company.

Increase your life cover with LIC Samridhi Plus

LIC Samridhi Plus was launched by India’s Life Insurance Corporation under the range linked with insurance based on security, protection and growth.
This is mostly directed towards policy holders protection the investments from any fluctuations that may hit the market.
This was also confirmed by the corporation stating that Samridhi Plus is a protection plan policyholders investments.
Another important feature of this policy is the life cover plan that stretches across a plan term of 10 years and covers around Rupees 50 lakh based under positive terms and conditions of the policy.
To avail Samridhi Plus an entrant’s minimum age limit should be 8 years while the maximum should be 65 years.
The range of minimum premium of this policy depends and can vary between Rs 1500 (through ECS) to Rs30, 000(by premium in a single go). It may also be in the form of a yearly payment of Rs 1 lakh for a payment period of 5 years.
The sale of this plan will be available throughout a term of 3 months from the launch date. Dual withdrawals are also sanctioned after the completion of the 5th anniversary.
Under the situation of death of the policy holder within the term of policy particularly when the life cover is at its full application, the person held as nominee will get a higher sum during the policy over the fund value of the policy holder.
Accident benefit as mentioned is also a part of this effective policy. The range of sum over the annualized premium ranges between 10-20 times below the age limit of 45 years under the premium term of 5 years of this policy.
Know more about LIC

New ULIP Plan Lunched by LIC

Life Insurance Corporation of India launched 'Samridhi Plus' under its unit linked portfolio offering insurance protection, safety and growth.

Samridhi Plus safeguards policyholders' investment from market fluctuations, LIC said in a statement here.

Accident benefit option is also available under this plan that will be equivalent to the life cover up to a maximum of Rs 50 lakh, subject to positive conditions.

The policy term for the plan is fixed for 10 years, it said.

The minimum age at entry level for Samridhi Plus is 8 years while the maximum age is 65 years.

The minimum premium ranges from Rs 1500 (monthly - ECS) to Rs 30,000 (single premium) depending on the mode of payment while the maximum is Rs 1 lakh per annum under any mode for the 5 year premium paying term.

Ulips to be a third of our products

With a focus on long-term savings plan and protection, Max New York Life Insurance has planned its traditional and Ulip products to suit the changing market dynamics. In an interview with FE’s Debojyoti Ghosh, the company's chief executive and managing director, Rajesh Sud, says the insurance company is looking at a healthy 33:67 mix of Ulip versus traditional over the next few years.
In the current market what kind of business do you foresee?
The year 2011 will be a year of change and adaptation for the life insurance industry. Life insurance industry will need to focus on and be sold as long term contractual savings and protection tool. It will also need to focus on providing consumers with a much more balanced product portfolio. The true value of a professional dedicated agent advisor will become truly visible since the product changes and disclosure requirements will ensure a higher seller and customer engagement at the time of the sale. Some select customer segments may also use the internet for simple products such as term plans.
Distribution trends may also under go changes. Much of the growth in life insurance is expected from increased agents' productivity.
Are you looking at a change in product mix and cost rationalisation?
A sustainable profitable growth is only possible through customer centricity. We will drive profitability in the business by reducing acquisition expenses and increasing persistency. We will enhance our focus on renewal income which obviously comes at a lower cost. For the period January to August, our product mix has been 30:70 (traditional: lips) and 85:15 for September to December. This significant skew toward traditional products has been mainly due to the limited Ulip offerings. We currently do not have pension and growth Ulips in our range which contributed 40(%) per cent in the first 8 months of 2010. We are looking at a healthy 33:67 mix of Ulip versus traditional over the next few years.
Is there any change in your investment scheme?
There has been no change in our investment philosophy. We follow a prudent investment philosophy to minimise risk.
The investments made by the company are in safe instruments – top 5 debt investments are AAA rated and majority of equity investment are in large cap, which are safe and provide good returns in the long run....