Unit Linked Insurance Plan, known in short as ULIP, is a life insurance-cum-investment scheme that allows you to save for your future while ensuring that your family is protected against your unexpected demise. ULIPs are different from endowment or money back plans in the fact that ULIP money is invested in mutual funds, bonds and stocks. You can decide what kind of investment vehicle to put their money in. Depending on the type of investment chosen, the returns on the policy could be quite high, resulting in greater savings for your and your family’s future.
There are several types of ULIP plans in India. ULIPs can be classified in various ways, such as:
|Policy name||Minimum entry age||Maximum entry age||Minimum annual premium||Premium allocation charge||Policy administrative charge||No. of funds||No. of free switches in a year|
|SBI Life – Smart Wealth Builder||7 years||60 to 65 years||Rs.30,000||Up to 9%||Up to Rs.60 per month||7||2|
|Reliance Nippon Life Classic Plan II||7 years||60 years||Rs.20,000||Up to 7.5%||Rs.40per month||5||52|
|HDFC Life Click2Invest ULIP||0 years||65 years||Rs.12,000||NIL||NIL||8||Unlimited|
|ICICI Prudential Smart Kid Solution||20 years||54 years||Rs.45,000||Up to 6%||Rs.60 per month or 2.52% of annual premium||8||NA|
|PNB MetLife Smart Platinum||7 years||70 years||Rs.30,000||Up to 6%||Rs.35 to Rs.40 per month||6||4|
|Name of the plan||Entry age||Premium payable||Fund Options Available||Premium allocation charge||Fund management charge (% of fund value)||Administration charge|
|Bajaj Allianz Life Goal Assure||0 years - 60 years||Minimum:Rs.3,000 to Rs.36,000 based on the premium payment frequency||8||Nil||0.5%-1.35% p.a.||Rs.400 p.a.(inflates at 5% per annum)|
|ICICI Pru Elite Life Super||0 years - 75 years||
||9||2%-5%||0.75%-1.35%||Rs.60 - Rs.350 per month|
|HDFC Life - Click 2 Invest||0 years - 65 years||
|Max Life Online Savings Plan||18 years - 60 years||
||5||Nil||0.5% to 1.25%||Nil|
|SBI eWealth||18 years - 50 years||
||4||Nil||0.5%-1.35% p.a.||Rs.45 p.m.|
ULIPs come with a 5-year lock-in period which ensures that investors stay invested for a significant amount of time and get high returns by the end of the lock-in period. Most ULIPs offered by insurers have multiple investment fund options and policyholders may choose to invest in debt, equity or a combination of both. The individual may choose any fund option offered by the insurer as per his/her risk philosophy. The investment options provided by ULIPs are similar to the options provided by mutual funds. The advantage of ULIPs over mutual funds, however, is the fact that ULIP policyholders need not pay the LTCG (Long-term Capital Gains) tax.
Here are some reasons why ULIPs make a great investment plan for you:
Unit Linked Investment Plans are very similar to endowment plans – the key difference being that investment through ULIPs are made in market instruments such as debt, equity and balanced funds.
You need to pay a premium amount, which is your contribution to the investment and insurance. A part of this amount goes into investment in funds, another part goes towards your insurance payments, and a small portion is deducted as administrative charges. You can decide your premium payment tenure from the 3 options – regular pay (where you pay premiums till the end of the policy period), limited pay (where you pay premiums for a limited period such as 5 years, 10 years or 15 years), and single pay (where you make a single payment for the entire duration). You can add riders to a ULIP policy and secure your life further, but this will mean paying a slightly higher premium. However, the benefits would be higher if you add riders to a scheme.
ULIP policies grow at a faster rate because of investment in mutual funds. The growth of the investment, however, depends on the fund you choose. If you are risk-averse you may want to go for debt funds, which are secure but give small profits. Balanced funds give moderate returns and equity funds give the highest yield of the three.
After 5 years, you will be allowed to withdraw money from a ULIP for your urgent requirements such as making down payment for a vehicle or house, or a medical exigency. Each policy/insurer will have their own limits on how much amount can be withdrawn and how frequently you can make withdrawals. If you pass away before the policy reaches maturity, your nominee can claim death benefits, and if you outlive the policy you can claim maturity benefits which would depend on how much your fund has grown.
When you purchase a unit-linked insurance plan, you will be allotted certain units. Each of these allotted units has a particular net asset value (NAV), which is declared on a daily basis, usually on the insurer’s official website. The NAV usually varies from ULIP to ULIP since it is based on market volatilities and the performance of funds.
In simple terminology, the NAV refers to the overall value of a ULIP’s holdings minus the total admissible expenses, such as the operating expenses, management fees, marketing expenses, service tax, etc. Thus, the NAV is calculated by adding a ULIP’s holdings and subtracting this sum from the total value of all liabilities.
In order to arrive at the net asset value of a single unit, the NAV of the entire fund is divided by the total number of units that are present in the fund as on the valuation date. This figure is what is referred to as ULIP NAV.
In accordance with a directive issued by the Insurance Regulatory and Development Authority of India (IRDAI), the valuation of equity shares is calculated based on the closing price of the shares on the National Stock Exchange (NSE). In case the shares are not listed on the NSE, the closing price of the shares on the Bombay Stock Exchange (BSE) or any other secondary exchange will be used to compute the net asset value.
Given the number of fund options that are available, ULIPs make a great investment choice, regardless of one’s stage of life or appetite for risk.
Before you purchase a ULIP, make sure to check the number of funds that are offered by the insurer and the risk profile of each fund. You can, thus, opt for a particular type of investment fund based on your financial goals, appetite for risk, and the needs of your dependents.
The IRDAI (Insurance Regulatory and Development Authority of India) brought about many regulations in the recent past in order to make ULIPs customer-friendly. The cap on overall charges, increase in minimum life coverage, and extension of the lock-in period from 3 years to 5 years are some of the major changes. The extension of the lock-in period allows the investors to remain invested for a longer period of time and reap maximum benefits.
ULIPs are a combination of life insurance and investment. It offers financial security to the life assured’s family and high monetary returns to the investors. Majority of the life insurance policies available in the market allow switching of fund options and premium redirection. This helps the investor to transfer funds, partly or completely, from one fund type to another according to the market performance to maximise returns. ULIPs also include features such as partial withdrawals that allow the investor to borrow a certain amount of money when in need, and loyalty additions that boost investments before maturity.
It is important to know the main features and benefits of a product before buying it. The characteristics of a Unit Linked Insurance Policy are as given below:
With the introduction of the LTCG (Long Term Capital Gains) tax in the 2018 budget session, ULIPs are considered a better option to invest in if the investment amount is huge and the investment period is long.
Thus, it has been made quite clear that an individual who wishes to reap multiple benefits like those mentioned above can choose a ULIP over equities or mutual funds.
A ULIP or Unit Linked Insurance Plan is a type of life insurance product that provides customers the unique benefit of having a comprehensive life cover and the option to invest in a choice of mutual funds. While ULIPs do come with a host attractive benefits, insurers also offer loyalty additions to policyholders in an effort to encourage them to keep the policy active.
Loyalty additions, also known as premium boosters, additional allocations, extra allocations, etc., are provided by life insurance firms to increase your investment corpus and returns. Insurance providers offer loyalty additions on life insurance policies to ensure that customers don’t surrender their policy midway through the policy tenure. Thus, in most cases, loyalty additions may only be paid out towards the end of the policy tenure along with the maturity benefit or to the nominee along with the death benefit payout. Loyalty additions may also be paid out to the policyholder if the policy is surrendered, based on the insurer’s terms and conditions. Loyalty additions may start to accrue right from the beginning of the policy tenure or after the five-year lock-in period, in the case of ULIPs
Insurance providers may offer loyalty additions as a percentage of the premium amount or as a certain percentage of the fund value of the policy. For certain insurance plans, loyalty additions can also be provided as a percentage of the life cover or sum assured. One thing to keep in mind is that loyalty additions which are provided by life insurance firms usually have little to do with the performance of the funds chosen by you. Instead, this is an additional allocation provided by the insurer as a reward for keeping your policy active
Loyalty additions are usually guaranteed by the insurer and you will know exactly when they will start to accrue. The amount that will be paid as loyalty additions by the insurer will, however, vary based on several factors such as the policy tenure, the sum assured, premiums amount, premium payment term, etc.
Loyalty additions are a good way to increase the returns that one is eligible to receive from the policy. However, this shouldn’t be the sole factor that you look for when purchasing an insurance plan. As a policy buyer, you should make sure to research the various ULIPs that are offered in the market, compare premium rates and the charges levied, and familiarise yourself with the policy terms and conditions, before purchasing an insurance policy.
Before you buy a ULIP, you need to consider a lot of factors. Some of the important considerations to make before buying a ULIP are given below:
Each policy will have different eligibility criteria. Some of the common parameters for ULIPs are:
ULIPs or unit-linked insurance plans not only provide policyholders a comprehensive life cover, but also serve as an effective investment tool, wherein individuals are given the option to invest in stocks and mutual funds with varying levels of risk.
A part of the premium that you pay for your unit-linked insurance plan goes towards maintaining your risk cover, while the remaining is invested in funds that you choose. Insurance companies also levy certain charges for ULIPs. Thus, it is important to be aware of the charges that are most commonly levied by insurers if you are looking to purchase a unit-linked insurance plan.
In conclusion, it is important to remember that despite the charges that are levied, ULIPs are a smart option for individuals who are looking to earn market-linked returns and increase their wealth over a period of time.
A premium calculator is a tool offered by insurance providers that will help you determine the amount you will need to pay as premium for the life insurance cover and savings that you require for your future. Premium calculators will need you to input some or all of the following details:
On putting in this information, the premium calculator will come up with an approximate amount that you will need to pay as premium. This amount should not be taken as an absolute. Premium calculators for Unit Linked Insurance Plans are not very common because the fund details are not always known and there are more variables than any other kinds of insurance policy.
Many ULIPs do not give you an option to add a rider. However, some companies do give you rider choices. The following are the most common riders that insurance companies would give you alongside a ULIP scheme:
If you are looking to purchase a life insurance policy, it is likely that you would have come across various types of life insurance products such as term insurance plans, whole life plans, ULIPs, endowment plans, child plans, etc. Each of these products offer certain unique benefits and features. Thus, it is important to first understand the various life insurance products. In this article, we will look at the key differences between term insurance plans and ULIPs.
Let us look at some of the key differences between term insurance policies and ULIPs:
Both term insurance policies and ULIPs are popular life insurance products. However, you will have to pick a policy based on your needs and requirements. Before you purchase a policy, make sure to shop around and pick a policy that offers an adequate coverage and affordable premium rates.
The 2018 Union Budget introduced the LTCG tax on profits exceeding Rs.1 lakh made from the sale of shares. Investors are to pay a tax equal to 10% of the profits made. Most investors, especially those who depend on dividends for income, are unhappy with the new LTCG tax regime. The implementation of the new tax regime would reduce the gains made from investing in equities. This gives ULIPs an edge over mutual funds.
Not only do ULIPs enjoy an LTCG exemption, but also enjoy benefits under section 80C and section 10 (10D) of the Income Tax Act, 1961. While the premium paid by the policyholder is exempted to a maximum cap of Rs.1.5 lakh under section 80C, the benefits received by the policyholder/nominee are tax-free under section 10 (10D).
The key differences between ULIPs and mutual funds are listed in the table below:
|Offers both insurance cover and investment option.||Offers only investment options.|
|Risk levels depend on the funds you choose.||Risk levels depend on the funds you choose.|
|Returns are variable and depend on the performance of the funds chosen. But they are generally lower than that of mutual funds because of the cost of insurance coverage.||Returns are variable and could be high or low depending on the performance of the funds.|
|Your investment amount is split between fees, insurance cover and fund growth.||All your investment is utilised only for investment.|
|There is a lock-in period of 5 years.||There is no lock-in period except for ELSS funds.|
|You can change your funds from equity to balanced to debt as per your choice. A certain number of free switches between funds are available every year.||You cannot switch from fund to fund. To change the fund type, you need to exit from one fund and buy another.|
|Additional benefits such as loyalty bonus and other kind of bonuses are available.||There are no additional monetary perks.|
|Liquidity is not very high – you can only make partial withdrawals after 5 years or surrender your policy.||Liquidity is high as you can exit from a mutual fund whenever you want by selling off all the units.|
|Several fees and charges are applicable as there are very few restrictions set by the IRDAI.||SEBI has set limits on fees and charges that can be levied on mutual funds.|
|Is a transparent product as all benefits and daily NAV are declared and explained.||Is also transparent as fund managers have to declare all costs, benefits and daily NAV.|
|Tax benefits are available under Section 80C. There is benefit in premium payment as well as in claiming benefits.||Tax benefits are available under Section 80C if the funds are in the form of ELSS. Otherwise long-term or short-term capital gains tax is applicable.|
|Can be either medium-term or long-term.||Are either short-term or medium-term.|
|Is regulated by IRDAI.||Is regulated by SEBI.|
The constant debate over whether investment in mutual funds is better or ULIPs seems to have come to an end after the introduction of the LTCG (Long-term capital gains) tax. Investors had to choose between the convenience of purchasing a ULIP that acts as a life cover and investment, or purchasing a term insurance plan for life cover and investing in mutual funds. With the introduction of the LTCG tax, investors who make profits over Rs.1 lakh a year might give it a second thought. LTCG tax at the rate of 10.4% will be levied on equity investments made through mutual funds. The tax will be applicable from the 1st of April, 2018.
Impact of LTCG on mutual funds:
Prevailing tax laws on ULIPs
Since ULIPs offer life cover, the Income Tax Act is applicable to the product. The death benefit and the maturity/surrender benefit (as long as the sum assured is 10 times the premium) are tax-free. ULIPs generally have a 5-year lock-in period. The ULIP costs are front-loaded and each of the costs is deducted differently. While the 1.35% fund management charge is deducted from the fund value itself, mortality charges and policy administration charges are deducted by unit cancellation. While the costs on mutual funds reflect on the NAV (Net asset value), ULIPs have more than one deduction type. Hence, estimating the cost of ULIPs is a lot more complex that estimating the cost of mutual funds that have costs packed under the TER (Total expense ratio).
It has been found that ULIPs are beneficial when invested for a long period of time. The longer the term, the more cost-efficient the ULIP. The cost of ULIPs had been rationalised to make them a good long-term investment when compared to mutual funds. However, the introduction of the LTCG tax has increased the cost-efficiency gap between ULIPs and mutual funds. While ULIPs are a combination of investment as well protection, they lack flexibility. If an individual who invested in a large-cap fund finds that it is not performing well, he/she will have to discontinue the ULIP. This is because many large-fund options will not be available to switch to. Hence, it is up to the investor whether he wants to invest in a ULIP or choose to purchase a term insurance plan separately and a different mutual fund plan.
Here are some common misconceptions people have about ULIPs:
Private insurance companies shift focus to ULIP to improve individual business
Private insurance companies are likely to shift focus to unit- linked insurance plans (ULIP) to improve their individual business.
There are various reasons behind the insurers implementing this move. Firstly, post-2010 regulations, ULIP offer better opportunities to a policyholder compared to traditional plans. The insurers find it easy catering to customers who understand the equities better and also prefer term insurance in order to be provided cover. Lastly, the surrender charges are being rationalised in traditional and par-saving plans.
Lower surrender charges and strong offering of the product has made ULIP a more preferred product as compared to traditional plans.
Close to 35% - 40% of the new business profits come from the surrendering of par-savings insurance policies. This is a huge concern among the people who run Insurance Regulatory and Development Authority (IRDA) as rationalising the surrender charges may result in the insurance companies seeing their margins take a hit, or they increasing the premium rates.
Group insurance products cater to more than half the insurance industry's business with 40% of total business coming from private bodies and the rest from LIC. Group insurance products, unlike private plans, are sold through direct channels.
Insurance is a push product and relies on distribution to grow. The cap put on surrender charges and commissions paid to distributors have forced insurance companies to look for alternate channels for the distribution of their products. It is when channels distributed by banks also called bancassurance channels came into force and gave private insurers the access to their distribution infrastructure which was cheap and cost saving for these private companies.
Some of the charges that are levied for ULIPs include the Premium Allocation Charge, Mortality Charge, Fund Management Charge, Policy Administration Charge, Partial Withdrawal Charge, Fund Switching Charge, Premium Redirection Charge, Premium Discontinuance Charge, Surrender Charge, and Service Tax. The charges that are applicable to your policy will be mentioned in the policy brochure.
ULIPs offer market-linked returns and the investment risk will have to be borne by the policyholder alone. Thus, the returns that you are eligible to earn will be based on market conditions and fund performance. Due to this, it is recommended that you track the performance of your funds on a regular basis.
Yes, you can switch funds at any time during the policy tenure. Insurance providers generally allow you to make a few free switches every year. However, any subsequent switches may be charged.
Most ULIPs that are currently offered by insurance firms do not give policyholders the option to avail a loan against the policy. However, most ULIPs come with a partial withdrawal option, wherein the policyholder can make partial withdrawals from their policy after the 5-year lock-in period.
Most insurance providers offer equity funds, debt funds, and balanced funds as part of their investment fund portfolio. You can choose to purchase in any fund as per your appetite for risk.
At the completion of the policy tenure, most insurers will offer the policy fund value to the policyholder as the maturity benefit.
All life insurance policies come with a free-look period of 15 days. If you are not satisfied with the policy after purchasing it, you can choose to return it during the free-look period. In this case, the insurance provider will return the premium that you paid initially.
If you want to surrender a policy after the free-look period but before the completion of 5 years, most insurance providers will move the fund value into their Discontinuance Policy Fund. The appropriate fund value will, in this case, be paid to you after the 5-year lock-in period.
If you surrender your policy after the 5-year lock-in period, the fund value of your policy will be paid to you.
Risk-averse individuals can choose to invest in debt funds, which are low-risk but offer low-moderate returns.
Listed below are the various things that you should check with your insurance provider before buying a policy:
The performance of the various funds offered by the insurer is usually listed on the insurer’s official website.
Canara HSBC Oriental Bank of Commerce Life Insurance has recently introduced a new non-participating, unit-linked insurance plan (ULIP) called the Titanium Plus Plan. This policy offers a comprehensive life cover to policyholders with flexible premium payment terms. Further, the insurer also gives policy buyers a number of portfolio management options.
One of the key benefits of this policy is that the life assured can opt to customise the life cover based on his/her changing financial needs during the policy tenure. Policyholders are also eligible to receive loyalty additions and wealth boosters. This policy can be purchased under the Married Women’s Property Act (MWPA).
Individuals from day 1 to 70 years can be enrolled under this plan. The maturity age ranges between 18 years and 80 years, subject to the maximum policy term. Premiums for this policy can be paid as a one-time amount, for a limited number of policy years, or for the entire duration of the policy term.
21 June 2018
Leading insurance company Bajaj Allianz Life Insurance Company reported an astronomical growth of 38% on business premiums for the fiscal year 2017-18 which is almost the double of what the insurance industry experienced during the same financial year.
Bajaj Allianz saw its share rise by 2.2% in FY18 as opposed to 1.9% in the previous fiscal year. The insurer also saw their business premium surge by 29% as compared to the insurance sector which witnessed an overall growth of only 11%.
Bajaj Allianz continued to maintain its stronghold in the eastern states especially Odisha as Cuttack and Bhubaneswar saw their market share jump by 12% and 39% respectively for the FY18. The insurance company has promised that they will introduce more new products and aim to reach deep into the state in order to maintain their stronghold.
23 May 2018
ICICI Prudential Life Insurance saw its shares jump 13% in the last two trading sessions after its earnings beat analysts expectations for the fiscal year 2018.
The company saw its Value of New Business (VNB) rise by 93.1% to Rs.12.86 billion for the FY18 compared to FY17 which had ended at Rs.6.66 billion.
Improvement in cost efficiency and growth in protection and savings Annualised Premium Equivalent (APE) played a stellar role in the insurance company witnessing such robust growth.
Changes in corporate tax assumption, cut in expenses and other products including ULIP delivering improved profits were some of the factors which saw the insurer’s new business margin increase from 10.1% to 16.5%.
25 April 2018
The ULIP Goal Assure Plan is a unique unit-linked insurance plan that was recently launched by Bajaj Allianz Life Insurance. This policy comes with a zero premium allocation charge and also reimburses mortality cost to the policyholder at maturity of the policy.
Upon the death of the policyholder, provided it happens during the policy tenure, the insurer will pay the sum assured, the fund value, or 105% of the total premiums, based on whichever is the highest of the three, to the nominee as the death benefit. The minimum sum assured that can be chosen is 10 times the annual premium.
Policy buyers can choose to invest in any one of the eight funds offered by the insurance provider. One of the key benefits of this policy is that the policy provides extra allocation at maturity. Further, this policy also provides refund of mortality charges at maturity. Upon choosing a higher premium, one can also become eligible to receive loyalty additions from the sixth year.
19 April 2018
IndiaFirst Life Insurance has reported a 43% growth of its individual annual premium equivalent (APE) on a year-on-year basis, with the new premium collection amounting to a sum of Rs.575 crore. The company’s premium collection over the last fiscal year amounted to Rs.403 crore. The insurer also reported a total new business APE of Rs.664 crore for the current year, in comparison to a collection of Rs.528 crore in the previous year.
For FY17-18, the insurer reported a gross collection of Rs.2,309 crore, with their new business premiums standing at Rs.1,497 crore and the renewal premium collection standing at Rs.812 crore. The company has issued more than 1.83 lakh insurance plans during the present year, in comparison to 1.26 lakh policies issued the previous year. The insurer also said that they paid claims exceeding Rs.235 crore.
17 April 2018
Insurer PNB MetLife has launched another ULIP product ‘PNB MetLife Whole Life Wealth Plan’, a comprehensive product designed to not only provide protection to the insured’s family but also safeguard their goals through an optional benefit called ‘Care Benefit’.
The plan offers a cover with limited premium payment term ranging between 8 years to 25 years. The plan also rewards their customers with ‘fund boosters’ available at the end of 10th and 15th policy year. Khalil Ahmed, Head-Product Management said that the new plan allows its customers to refine its life investment while ensuring that they are keeping their family’s future secured. Along with providing dual benefit of a life cover and investment, all the future premiums will be waived off incase the insured is diagnosed with any critical illness covered under the plan. The plan offers 11 funds of which 5 are newly added and 2 new investment strategies providing a huge range of opportunities for its customers to invest as per their capabilities.
21 March 2018
Bajaj Allianz has launched Gold Assure, a unit linked insurance plan, designed to provide life cover and investment benefits to the new age investors.
The plan comes laded with various features amongst which returns of mortality charges and guaranteed returns on life covers after attaining maturity are some of the major ones.
Bajaj Life said that there new plan will be a game changer. It said that today’s investors look for solutions which are value packed, backed by reliable investment performance and convenient and the plan has been designed to provide all these facilities to its customers.
19 March 2018
In an effort to increase the sales of unit-linked insurance plans (ULIPs) post re-introduction of the LTCG (Long-Term Capital Gains) tax on equity investments, it is now seen that insurance providers are offering innovative insurance solutions at affordable prices to customers. Given this, Max Life Insurance, a leading life insurance provider, has recently launched a ULIP called Max Life Online Savings Plan. This policy is offered in two variants.
In the first variant of the policy, the nominee is offered the insurance cover or the policy’s fund value, based on whichever is the higher of the two, as the death benefit. At maturity, the policyholder’s will receive the fund value. In the second variant of the plan, the child (nominee) will receive the death sum assured and future premiums will be waived off. At maturity of the policy, the nominee will receive the fund value. Since this is a unit-linked policy, the policy buyer can choose to invest in any one of the 5 funds offered by the insurance provider.
15 March 2018