Insurance

Why do insurers prefer ULIPs?

Insurers love ULIPs for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies.   In traditional ‘with profits’ policies, the insurance company bears the investment risk to the extent of the assured amount. In ULIPs, the policyholder bears most of the investment risk. Since ULIPs are devised to mobilise savings, they give insurance companies an opportunity to get a large chunk of the asset management business, which has been traditionally dominated by mutual funds.
Advantage
  • The accretion to the fund invested can be checked on daily basis unlike the traditional   policies.
  • There is lot more flexibilities like partial withdrawal, switching, redirection, early withdrawal, Sum Assured reduction, top up contribution, etc.
  • Charges are transparent in nature, with the latest AML guidelines insisting on common nomenclature of charges for all insurance companies.
  • The customer can time the market by exercising switch options and make the most when markets are zooming or choose to be conservative when markets are falling. its thus win-win situation
  • He gets a life cover at a nominal cost unlike mutual funds,
  • Almost all companies provide riders like accidental death and disability/dismemberment riders, crtitical illness rider, hospital cash benefit rider, income loss rider, etc
  • Stages in one life like education of children, marriage, and retirement needs can be soundly planned by the help of ULIPs.
  • Tax advantages are also offered by the ULIPs.
Disadvantages
  • Investors find it difficult to understand the nuances of capital market and therefore goes by the heard mentality. ie, they invest because their friends and family is investing without understanding how ULIPS are designed.
  • ULIPS are attractive for risk taking people and less attractive for risk averse people.
  • Some consider taking term insurance and a mutual fund as a combination to beat the ULIP.
  • Some consider charges levied exorbitant and not commensurate to the returns offered
  • The complicated design of the polices make them les aware of the product features and chances of misselling by agents are very high.
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ULIP vs Fixed Deposit

This articles focuses on ULIP vs Fixed Deposit. When it comes time to make investments, individuals are often confused among the different choices that are available. The most common confusion arises between the following methods: ULIP and FD. Which one of them is better?

This is an issue that stumps most small investors as they see and hear different versions of the answer depending on who or where they approach. Let’s make a quick comparison to understand them.

ULIPs vs FDs: the best one

ULIP is the Unit Linked Insurance Plan offered by the insurance companies. In ULIP, some of the premium individuals pay goes to equity investments, government bonds as well as other market-linked investments. Always look for a comparison of ULIP charges between different fund houses before you invest.

Bank FDs are money that has been invested in a bank for a fixed period, taking interest from the bank.

There is always some degree of risk involved in a ULIP, however low. Investors generally preferred investing in safer instruments such as fixed deposits, despite the lower returns. But only inflation will beat Fixed Deposits. On the other side, a ULIP is a market-linked strategy with exposure to equities. A portfolio with long-term equity exposure usually returns more than any other asset, such as fixed deposits or bonds.

Death Benefits

ULIP gives you a death benefit. Because it is Life Insurance, there is indeed a Sum Assured which would be payable to the nominee on the death of the policyholder insured. The Fixed Deposit is an investment avenue with no death benefits.

Flexibility:

ULIPs offer you the flexibility to change the allocation of the fund. With online switching made easy, you can swap between the funds depending on the market outlook and the risk mentality that you want to adopt. This facility is not available for use in Fixed Deposits.   ULIPs sometimes provide additional loyalty benefits through the issuance of additional units. This feature is again missing from Fixed Deposits.

Tax rebates and exemptions:

Only ULIPs provide both tax rebates and tax exemption facilities. Tax rebates mean that the amount invested is eligible to be deducted from your income, thereby reducing your taxable income and therefore your tax burden. The tax exemption indicates that the income received from those investments is not subject to tax. In other words, the payments received are tax-free in the hands of the investor. ULIPs offer tax rebates and tax exemptions under Sections 80C and 10D of the Income Tax Act, 1961.  Tax Saving Fixed Deposits are also there to get a Tax Benefit Locking Period for Tax Saving Fixed Deposit is 5 Years.

Lock-in time

Even though ULIP does have a lock-in period of five years, which is not present in bank Normal FDs, the truth is that if you withdraw the amount deposited in the F.D before the due date, there is a loss of interest due to the same.

Charges

ULIP has a premium allocation, fund management, and administration charges. These do not apply to fixed deposits.

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ULIP vs Regular Insurance Policy

ULIP’s and Traditional policies both work alike. A part of the premium is set aside for life cover and the rest is invested in a fund after deducting charges.
The main advantage of a ULIP is that the investor knows exactly about the break-up of his premium into life cover, the fees being paid and the amount being invested in a fund. The performance of the funds can also be tracked as the returns are linked to the market performance. On the other hand, in traditional policies, no information about the break-up of charges is shared with the investor. He also does not know whether the bonuses paid to him every year are all that his fund has made or whether the company is giving him only a share of the profits. Policies encourage savings whereas ULIPs take the investment path and hence have higher growth options.

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Charges Under ULIP (Unit Linked Plans)

  • Contribution Related Charges : These are the charges that are represented as a percentage of the regular or single contribution paid. In case of a regular contribution plan, it is usually high in the first year to pay for the distribution cost. This charges pays for the issuance and for distribution commissions. This charges are running for the policy.
  • Administrative Charges : These are charges that are levied for the administration of the policy and the related cost of administration of the insurance company,itself. They are more related to the cost like IT , operational, etc cost of continuing the policy.
  • Fund Management Charges : These are the charges for buying and selling debt and equity. These are the charges are adjusted in NAV it self.
  • Mortality Charges : This covers the cost of providing life protection for the insured and may be paid once at the start of the policy for a recurrent manner for example this charges levied to provide the insurance cover under the plan . normally these charges are one year charges as per the age of the holder.
  • Rider charges : Rider charges are similar in nature  to the mortality charges as they are levied to pay for the other protection benefits that the policy holder has choosen for- like the critical illness benefit or the accident benefit,etc.
  • Surrender Charges : When the policy holder decides to surrender the policy or partially withdraw some of the units  for cash , a surrender charge may be apply. Surrender charges are used to cover initial expenses that have been incurred by the company but not yet recovered from the policyholder yet.
  • Bid offer Charges : In ULIP specifically certain insurers might create a difference in the price at which they sell the unit and the price at which they buy the units. Investor’s contribution are used to buy units in the investment fund at the offer price and are sold when benefits are required at the bid price. The difference between the offer and bid prices Is known as the “bid-offer spread”, this is used to cover expenses when setting up the policy.
  • Transactional specific Charges : These charges are levied when the client does some specific transaction like changing funds, topping up the investment component or withdrawals.
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Unit Linked Plans (ULIP) in India

Unit Linked Plans (ULIP) in India are very popular. ULIP is on top in the buzz list in India because it offers more advantages than regular life insurance plans. There are several financial benefits, such as higher returns on investment, partial withdrawal, flexibility to choose life cover, wider fund options, up facilities, free switches, tax advantages, etc.
If you are looking for long-term investment and better returns, ULIP is a good option to accomplish your objective. However, when people buy the ULIP they may find difficulties because there is a single, regular premium option. People need to choose the best choice for you.

ulip in india

They, will make a small payment in single premium ULIP, and enjoy the benefits over the duration of the program. In the case of a recurring premium, customer need to pay the premium on a regular basis, it can be made to pay yearly, half-yearly, quarterly, and monthly.
In investment terms, both offerings offer similar options, such as equity, debt, and liquid. Customers can request commitment to pay more under a single premium option. Yet, as a matter of loyalty, nobody would ask you to pay more for the single premium product.
A single premium product in the initial years of ULIP offers higher returns than a standard premium product. But, it’s the latter changing balance power down. But this is not in practice, because of IRDA regulations. Regular premium ULIP products are also good for a variety of factors, including affordability, tax benefit and large return.
ULIP charges are also to be regarded as single and regular premium. Also, taking an overview of different charges is important under ULIP plans. This covers premium allocation fees, risk cover fees, policy administration fees, fund management fees, operation tax fees, miscellaneous fees, etc ..
ULIP is, in the end, a pleasant combination of life cover and investment. But don’t buy it just for investment purposes, there are other good options for the money. Unit Linked Insurance Plan (ULIP) is a life insurance approach that offers the investor the benefits of investment and versatility. This is a solution for life insurance where the value of the policy varies at a certain point depending on the value of the underlying assets at the time.
The investment is called Net Asset Value (NAV) and is defined by the interest it has achieved. In the 1960s ULIP entered into play and became very popular in Western Europe and America. The reason ULIP ‘s widespread success is attributed to is due to the simplicity and versatility it provides to customers.
As time progressed, the strategies were also successfully developed along with life insurance requirements for retirement planning. Today, ULIP offers solutions to all a client’s needs such as insurance preparation, investment needs, investment planning for the future of children, and retirement planning.

Some of the Best Unit Linked Plans in India offered by Leading Life Insurance Companies are :

  1. Bajaj Allianz Future Gain Plan
  2. Bajaj Allianz Life Future Wealth Gain
  3. Bajaj Allianz Fortune Gain Plan
  4. Bajaj Allianz Principal Gain Plan
  5. Bharti AXA Life Grow Wealth
  6. Bharti AXA Future Invest
  7. Bharti AXA Life eFuture Invest
  8. Birla Sun Life Insurance-Fortune Elite Plan
  9. Birla Sun Life Insurance-Wealth Aspire Plan
  10. Birla Sun Life Insurance-Wealth Secure Plan
  11. Birla Sun Life Insurance-Wealth Assure Plan
  12. Birla Sun Life Insurance-Wealth Max Plan
  13. HDFC Life Click 2 Wealth Plan
  14. HDFC Life Classic One Plan
  15. HDFC Life Sampoorn Nivesh
  16. HDFC Life Capital Shield Plan
  17. HDFC Life Click 2 Invest Plan Review
  18. HDFC Life Pro Growth Plus Plan
  19. HDFC Life Single Premium Pension Super Plan
  20. HDFC Life Pro Growth Maximiser Plan
  21. HDFC Life Pro Growth Flexi Plan
  22. HDFC Life Young Star Super Premium
  23. HDFC Life Smart Woman Plan
  24. HDFC SL Crest
  25. HDFC SL Pro Growth Super II
  26. ICICI Pru SIgnature Plan
  27. ICICI Pru Smart Life Plan
  28. ICICI Pru1 Wealth Plan
  29. ICICI Pru Elite Wealth Super
  30. ICICI Pru Guaranteed Wealth Protector Plan
  31. ICICI Pru Life Time Classic
  32. ICICI Pru Elite Life Super
  33. ICICI Prudential Elite Life II
  34. ICICI Prudential Wealth Builder II
  35. ICICI Prudential Elite Wealth II
  36. Reliance Nippon Life Premier Wealth Insurance Plan
  37. Reliance Nippon Life Smart Savings Insurance Plan
  38. Reliance Life Pay Five Plan
  39. Reliance Life Insurance Classic Plan II
  40. SBI Life Saral InsureWealth Plus
  41. SBI Life eWealth Insurance Plan
  42. SBI Life Smart Privilege
  43. SBI Life Smart Wealth Builder Plan
  44. SBI Life Smart Power Insurance Plan
  45. SBI Life Smart Elite Plan
  46. SBI Life Smart Wealth Assure
  47. SBI Life Smart Scholar Plan
  48. SBI Life Saral Maha Anand

 

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Projects4MBA (June 16, 2021) Unit Linked Plans (ULIP) in India. Retrieved from https://www.projects4mba.com/unit-linked-plans-ulip-in-india/155/.
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Projects4MBA September 10, 2011 Unit Linked Plans (ULIP) in India., viewed June 16, 2021,<https://www.projects4mba.com/unit-linked-plans-ulip-in-india/155/>
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"Unit Linked Plans (ULIP) in India." Projects4MBA - Accessed June 16, 2021. https://www.projects4mba.com/unit-linked-plans-ulip-in-india/155/
"Unit Linked Plans (ULIP) in India." Projects4MBA [Online]. Available: https://www.projects4mba.com/unit-linked-plans-ulip-in-india/155/. [Accessed: June 16, 2021]
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