HOW ULIPS CAN MAKE YOUR RICH .
Unit Link Insurance Plans
Ulip came into play in the 1960s and became very popular in Western Europe and Americas. In india, UTI and Post Offices were offering such plans in late sixties, and the LIC came in play.
Today almost all the insurance companies are offering Unit Link Insurance Plans (ULIPs) for investments. As per latest reports, over 70% of the total insurance business is garnered in ULIP plans and rest is for endowment or other term insurance plans. For a common investor, it is very necessary to understnad the right product mix to suit his own need. ULIP plans give various options for investments and are designed as investor-friendly plans. But what are these ULIP plans and what does ULIP mean.
What is ULIP?
Unit linked Insurance Plan (ULIP) is life insurance solution that provides for the benefits of protection of life and flexibility in investment i.e. equity and / or debts. The investment is denoted as units and is representd by the value that it has attained that is called as Net Asset Value (NAV). The Policy value at ay time varies according to the value of the underlying assets at the given tiem. Unit Plans are investment plans for those who release the worth of hard-earned money. these plans help you see your savings yeld rich benefits and help you save tax, even if you don't have consistent income. thus these plans have dual purpose of savings like mutual funds with insurance cover.
ULIP came into play in the 1960s, and became very popular in Western Europe and Americas. In India, UTI and Post Offices were offering such plans in late sixties, and then LIC became the player. but due to less popularity and poor stock market conditions at that time, there were few takers for this scheme. However, the reason that is attributed to the wide spread popularity of ULIP is advanced country at that time was due to transparency and the flexibility, which it offered. Here too, these plans were made attractive with assured return policies in the recent past, and once gain IRDA (Insurance Regulatory Development Authority) has asked insurance companies to bring in more transparency and lower the administrative costs.
The subsequent softening of interest rates introduced a degree a much-needed rationality to insuranc e products like endowment plans; attractive erturns at low risk became a thing of the past. The same period also coincided with an upturn in equity markets and the emergence of a new breed of market-linked insurance products like ULIPs.
While in converntional insurance products the insurance component takes precedence over the savings component, for ULIPs the process gets reversed.
What are the benefits of ULIPs?
ULIP provides multiple benefits to the consumer. The benefits includes:
- Life Protection
- Investment and Savings
- Flexibility
- Adjustable Life Cover
- Investment Options
- Transparency
- Options to take additional cover against (a) Death due to accident (b) Disability (c) Critical illnness (d) Surgeries
- Liquidity
- Tax-planning
As transparency was missing and returns were assued IRDA (Insurance Regulatory Development Authority) came forward to bring new guidelines for ULIP
More importantly ULIPs offer investors the opportunity to select a product, which matches their risk profile; for example an individual with a high risk appetite can shun traditional endowment plans (which invest about 85% of their funds in the debt instruments) in favour of a ULIP which invests its maximum corpus in equities.
How to Select right product mix in ULIP?
While for endowment and other traditional insurance plans, the sum assured is the main stream, where as in ULIPs it's the amount of payment you make becomes the corner stone. ULIPs are nothing else, but the scheme like mutual funds, promoted by insurance companies in terms of their structure and functioning where NAV term becomes the main parameter for returns.
Investors have the choice of enhancing their insurance cover, modifying premium payments and even opting for a distinct asset allocation than the one they originally opted for. Also if any unforeseen eventuality were to occur, in case of traditional products, the same assured is paid along with accumulated bonuses; conversely in ULIPs, the insured is paid either the sum assured or corpus amount whichever is higher. While ULIPs can provide the added value to one's insurance portolio and financial planning; the same is not without its drawbacks as well. Higher expenses, rigid defination of insurance and the impact of markets on the corpus can definitely make it a complex scheme to understand. Thus it also becomes tedious for one to make the prospect understand the ULIP plans. One needs to make the informed decision, while investing in ULIPs and that's the key factor. So, make it clear that Unit Linked Insurance polices (ULIPs) are insurance policies that combine risk coverage with investing in the stock/debt markets i.e. getting insurance via mutual fund scheme mode. Payment made for Ulips gets invested in specific types of portfolios that one chooses. The policy typically pays back, based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover as well.