3. Premium for ULIP
Investment as Unit Life Coverage
A category of goal-based financial solutions
Safety of insurance protection + wealth creation
opportunities.
In ULIPs, a part of the investment goes towards
providing 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.
4. ULIPs are structured in such a way that the protection
element and the savings element are distinguishable,
and hence managed according to the specific needs of
the customer. In this way, the ULIP plan offers
unprecedented flexibility and transparency. The
investment is denoted as units and is represented by the
value that it has attained called as Net Asset Value
(NAV).
5. Benefits of life cover along with investment
(Protection & Investment)
Top up
Switch between funds,
Increase or decrease the life cover during the
term of the policy
Cover continuance option
Surrender options &
Range of riders which can be attached to the
main policy to provide added protection.
6. 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. (Premium Allocation charge- varies)
The rest of the premium is invested in the fund or mixture of
funds chosen.
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 basis.
At the time of maturity of the plan, one is entitled to receive
the fund value as at the time of maturity.
7. A 30 Year old
SA- 5,00,000
Term- 20 Years
In a ULIP- Premium: INR 25,000- 30,000
In a term plan- Premium: INR 40,000-50,000
Difference??
Cost of Distribution
Cost of administration
Margin of the insurer
In a ULIP, costs and margins are recovered
commonly between the investment portion and
the insurance portion. However, if you were to
buy a term policy and a mutual fund, the insurance
company will recover its costs of distribution and
administration as well as margins. The mutual fund
would again recover the same costs from your
investment portion.
8. Please Note: If the Life cover amount required is low then large sum of money will get
invested in stock market. Most ULIPs have classification in terms of investment i.e.
whether you want to invest in stocks or govt bonds so that it goes with your risk profile.
If you invest 100rs in ULIP and 20 is going as a
cost for the cover, over the years your 80 will
get 12-15% of returns and will wipe off the cost
and still get you good returns.
9. “The reason why ULIPs have become popular is because
they offer huge amount of flexibility during the course of
the policy. You can vary your mix between protection and
savings or within savings, your fund mix.”
A ULIP gives the flexibility of increasing the life cover, while maintaining the same
premium.
Eg: If you have a term policy and would like to increase your life cover, your only
option would be to buy another term policy. This would mean paying administration
charges all over again.
With a ULIP there is no fear that the policy will lapse if the premium is not paid.
The cost of insurance will be taken out of the existing investment to keep the policy
going. However in case of failure of premium payment in a term policy, it will
lapse.
10. 1) For Retirement planning
2) For Long-term wealth creation
1) Single Vs Regular premium Plans
2) Guarantee Vs Non Guarantee Plans
3) Life-staged Vs Non-Life staged plans
3) For child education
11. Aggressive funds (Primarily invested in equities with the general
aim of capital appreciation)
Conservative funds (invested in cash, bank deposits and money
market instruments with aim of capital preservation)
This helps to decide to invest money in line with the market
outlook, time-horizon and the individual investment preferences
and needs.
High risk appetite More aggressive investment option
Additionally there is an advantage of switching fund options to
make the investments work in tandem with the market.
These days, various ULIPs also offer the options of life stage
strategy which keep dynamically altering themselves without
having to monitor.
12.
13. It is an expensive deal !!
Investment risk lies with the policyholder and
not the Insurance company.
Unit-Linked Insurance Plans (ULIPs) are meant to help
achieve financial goals over the long-term. As a short
term investment tool, they will not give a considerable
return on investments, because of a product cost
structure which is higher in the initial years. However,
overall charge structure for the term comes down
substantially if spread over a number of years.
14. Potential for better returns
Greater transparency
Flexibility in investments
To invest money the way you want
To change fund allocation
To invest more via Top-Ups
To skip premium
Flexibility in insurance coverage
Choose coverage
Increase risk cover
Higher liquidity- Better exit options!
15. Similar in structure and functioning
ULIPs Mutual Funds
Investment
amounts
Determined by the investor and can be modified as
well
Minimum investment amounts are determined by the
fund house
Expenses
No upper limits, expenses determined by the
insurance company
Upper limits for expenses chargeable to investors have
been set by the regulator
Portfolio
disclosure Not mandatory* Quarterly disclosures are mandatory
Modifying asset
allocation Generally permitted for free or at a nominal cost Entry/exit loads have to be borne by the investor
Tax benefits
Section 80C benefits are available on all ULIP
investments
Section 80C benefits are available only on investments
in tax-saving funds
