Description
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
Sea Change in Insurance
Market Linked Returns have become the norm today. This is the reason why insurance companies launch Unit Linked Plans with different terms. Important thing is that it stands competitive not only to other insurance products, but also to mutual funds. To gain market power and to protect or enhance profitability. The product must be a little de4veloped. A Unit Linked Plan provides an opportunity for the discerning investor to benefit from the returns available in the capital market without going for direct investment in the capital market. Middle age group people prefer Unit Linked Plan because as they want to take more return by taking risk and to save for future. More plans are to be formulated which assure more capital growth with less risk. The insurance sector in recent past has seen sea change. Customers are now more and more informed and are no more satisfied with traditional policies which are pre-bundled. Keeping this in focus, the latest Unit Linked Plans have been introduced in the market "Unit Linking" is a concept of linking customers investment to the market" Linking implies matching. The value of the policy is linked to the value of net assets of the fund. Introduction: A Unit Linked Plan provides an opportunity for the investor to benefit from the returns available in the capital market without going for direct investment in the capital market. This paper deals with the customers' awareness and their interest towards income, growth and balanced fund. It also deals with how it varies from Mutual funds. Similarity with Mutual Funds: Unit Linked Insurance plans are essentially similar to Mutual Fund products where in the premium is invested in various funds in keeping with policy holders' risk appetite. However the difference in a mutual fund investment is that the money is virtually at call by the customer. In case of Unit Linked insurance plans, it is impossible to predict whether the market will be in an upswing on the day of the policy holders' death or on maturity. The Net Asset Value will reflect the underlying value of assets, which in turn is dependent on the movement of the SENSEX. Traditional Vs. Modern Insurance Plans: Any insurance companies plan have two components: • • Company Customer
If the company takes all the risk on investment and passes all the benefits to the customer, then the risks of investment lies with the company only. All traditional plans like endowment, money back, etc., are such plans. However, if the customer shares the risk of investment, then it is called as universal plan. All linked plans are universal plans. Here, the customer decides where to invest his money and for how long. So, the focus is on the company and overall customers. Apart from the basic difference, there are certain other advantages of Unit linking too. ULIP guidelines by IRDA: The regulator- insurance and development authority (IRDA) finally introduced some much needed guidelines.
1.Term: the ULIP client must have the option to choose a term and must have a minimum tenure of five years. 2.Sum assured: Sum assured may be calculated as term/s "annual premium or five annual premiums whichever is higher. There is no clarity with regards to the maximum sum assured. The sum assured is treated as sacred under the new guidelines; it cannot be reduced during the term of the policy except under certain conditions like a partial withdrawals after sixty years of age. This way the client is at ease the sum assured at his disposal. 3. Premium payments: if less then the first three years premiums are paid, the life cover will lapse and policy will be paying the surrender value. However, if at least, three years premiums have been covered would have to continue at the option of the client. 4. Surrender value : The surrender value would be payable only after completion of three policy years. 5. Top Ups: Insurance companies can accept top ups only if the client has paid regular premiums top up amount exceeds 25% of total basic regular premiums paid till date, then the given certain percentage of sum assured on the excess amount. Top ups have a loss (unless the topups is made in the last three years of the policy. 6. Partial withdrawals: The client can make partial withdrawals only after three policy years. 7. Settlement: The client has the option to claim the amount accumulated in his account after maturity. The policy up to a maximum of five years. For instance, the ULIPs matures on 1st January, 2012 has the option to claim the ULIP bonus till as late as 31st December, 2012. 8. Loans: No loans will be granted under the new ULIP. 9. Charges: The insurance company must state the ULIP charges explicitly. They must also give deduction of charges. 10. Benefit Illustrations : The client must necessarily sign on the sales benefit illustrious. These illustrious, a client by the agent to give him an idea about the returns on his policy. Agents should show an optimistic estimate of 10% and a conservative estimate clients have to sign on these illustrations, because agents are violating these projections projecting higher returns. ULIPs initiated in ? ULIPs were first offered in US in 1976, after being developed and sold successfully in the Netherlands, England and Canada in the name of Variable Life Insurance. Basically it was a type of whole life insurance whose values may vary directly with the performance of a set of earmarked investments. Special features of ULIPs:
1. Transparency: The Unit Linked Plans are said to be transparent because the client knows exactly how much of his money goes in charges and how much for investment. Also investor is able to know where his money is being invested. Everyday NAVs are declared and he comes to know either by Television or print media. As to how the funds are performing. 2. Customer friendly: these plans are more customers friendly as they allow customer to access money after three years instead of waiting for a very long time. As and when customers' income levels increase or decrease, he has a choice to increase or decrease the premium he invests. The exit options are available after lock-in-period of three years. Due to the above reasons, the Unit Linked Plans are said to be more customer friendly. 3.Flexibility:Individual may well ask how ULIPs are any different from Mutual Fund. After all, Mutual Funds offer hybrid balanced schemes that allows an individual to select plan according to different needs. 4. Works like SIP: Rupee cost averaging is another benefit associated with ULIPs. Individuals already heard of the "Systematic Investment Plan" (SIP) which is increasingly being already heard Mutual Fund industry with an SIP, individuals invest their money regularly overtime month/quarter and don't to worry about "timing the stock markets these are peculiar to Mutual Funds. Not many realize that ULIPs also tend to do the same quarterly/half-yearly basis. As a matter of fact, even the annual premium in a Unit Linked Product work, cost averaging principle and added benefit is that individuals can also invest amount in the ULIP either to benefit from other opportunities in the stock market of investible surplus in a particular year that they wish to put aside for the future. Risks in ULIP policies may be listed out like this: • • • • • • The chances of dying in an index downturn. It may not be possible to replace the economic value of an individual to their dependants with these policies. It is not appropriate for a 35 year old middle class man to bet his last penny on the direction of the market. It may not be prudent to link the money an individual wants to leave behind for family to the whims and fancies of stock market mechanics? It may not be appropriate to consider insurance as a means to make big bucks. All risks like portfolio management, reputation risk, environmental risk, systematic risk, credit risk, liquidity risk, etc., may effect ULIP returns.
How ULIPs workout to insurance companies, where premium is paid just for three years of 5 years? ULIPs were shown to be a short cut investment/ insurance avenue-were encouraged to pay premiums only for the first three years and not necessarily over the policy. The reason is because the expenses in the initial three years premium insurance companies recover the entire cost of the policy. What part of your premium will be invested? Premiums can be paid quarterly, half yearly or yearly. These plans give an option to the investor to choose between three fund options – debt, equity and balanced.
Insurance companies charge anywhere between 20-35% as upfront charges for their Unit Linked Plans. So, every time you make your premium payment, only a part of it is actually invested in the fund of your choice. How to access your money? 1. On maturity: Policy matures at the end of the policy term of the policy chosen covers death and other risk will be covered. Balanced units may be redeemed at the prevailing unit price and take the fund value. However, policyholders also have an option to take fund in periodical instalments over the period which may extend to five years. This is called the "settlement option". Money will remain invested in the funds chosen during such period, company will continue to deduct charges other than the risk benefit charges such as the mortality charge. At the end of this five year period, one can redeem the balance units as the then prevailing unit price and pay the fund value. Policy will terminate the moment the balance of units in all the funds reaches zero. 2. On death: In case of one's unfortunate demise before the end of policy term, company will pay the greater of the sum assured (less any withdrawals made during the two year period immediately preceding the intimation of death) and total fund value the family and policy will terminate thereafter. 3. On critical illness: In case one is diagnosed with any of the critical illness covered before the end of the policy term, company will pay the greater of the sum assured (less any withdrawals made during the two yer4a period immedtely preceding the intimation of the diagnosis) and total fund value to the family and policy will terminate thereafter. 4. On surrender or partial withdrawal: In the first three years Insurance plans are long-term investments with significant tax advantages. Neither the IRDA nor the company view them as short-term plans. Therefore, for the first three years known as lock-in-period, one may not surrender the plan or withdraw any portion of the funds from it. If one stops regular premium commitment before three years, live cover will cease and funds will be paid out to the policyholder only at the end of the third year or the end of the revival period of two years, whichever is later. From the fourth year onwards, one can choose to surrender the policy at any time and the surrender value will be value will be value of the units in the fund. The company will enforce surrender only if one stopped paying regular premium account. One can make lump sum partial withdrawals from the funds at any time within the policy term chosen provided: • • The minimum withdrawal amount if Rs.10,000/After the withdrawal, the fund does not fall below one's original annual regular premium amount.
•
After the withdrawal, the fund does not fall below the sum of the single top-ups paid to date.
Easy steps of your own plan: • • • • Step 1 Choose the amount of premium you can afford. Step 2 Choose the amount of lump sum money(sum assured) you desire to have. Step 3 Choose the additional benefits you want to have Step 4 Choose the investment fund or funds you want to have.
Step one: Choose the amount of premium you can afford: This is the premium you need to pay regularly for each policy. The minimum regular premium is Rs.10,000/- per anum. You can pay monthly, quarterly, half-yearly or annually. You can contact your financial consultant about he available range of convenient auto premium payment options. You may also choose to pay adhoc single premium top-up or additional regular premiums depending on your convenience. Step 2: Choose your level of protection: you can choose any amount of sum assured with • • A minimum of (term of your policy/2) times your chosen annual regular premium. A maximum of 30 to 40 times your chosen annual regular premium.
Step 3: Choose the additional benefits you want to have: Insurers offer a variety of valuable protection options to secure the future. For your family you can choose anyone of the following death benefits: • • • • Life option ----- death benefit Extra Life option ----- Death benefit plus accidental death benefit. Life and Health option ------- Death benefit plus critical illness benefit Extra life and health option ------ Death benefit plus critical illness benefit plus accidental death benefit
Step four: Choose the investment fund of funds you wish to have: In this plan the investment risk in your chosen investment portfolio is borne by you. This means that the premiums you pay in this plan are subject to investment risks associated with the capital markets. So, to balance your level of risk and return, making the rightly investment choice is very important and your are responsible for the choices you make. Analysis: • • • Out of 200 respondents 49 percent of the ULIP customers are satisfied towards growth fund, 20 percent are satisfied towards income fund, 31 percent are satisfied towards balanced fund. 90 percent of the respondents are aware of ULIPs and 10 percent not aware. Majority of the people came to know through brokers only.
• • • •
Majority of the people came to know through brokers only. Majority of investors have high confidence in Government securities that is LIC insurance products. The maximum percentage of the investors prefer public sector for safety. The maximum percentage of investors prefer safety, liquidity and returns.
Beneficiaries: If the policy holder has not assigned the policy. • • Policy holder will receive the benefits due on maturity at the end of the policy term. If the policyholder will unfortunately demise, nominee will receive the benefits due.
Charges: The charges under this policy are deducted to provide for the cost of benefits and the administration provided by the company. The charges, when taken together, are structured to give the policy holder better returns and value for money over the long term. Premium allocation charge: This is a premium-based charge. After deducting this charge from premiums, the reminder is invested to buy units. Fund Management Charge(FMC): In the long term, the key to build great maturity values is a low FMC. The daily unit price already includes minimum fund management charge of only 0.8 to 1 percent per anum of the fund fund's value. Surrender charge: This is the charge applied when the policy is surrendered. It is equal to 25 to 30 percent of the difference between the regular premium expected and received in the first two years of the contract. Other charges: The other charges may be like policy administration charges, mortality and other risk benefit charges, switching charges, partial withdrawal charage, revival charges, miscellaneous charges, etc., Tax Benefits (based on current tax laws) policyholders are eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. • • Under Sec 80C, you can save up to Rs.33,990 from tax each year (calculated on the highest tax bracket) as premium up to Rs.1,00,000 are allowed as a deduction from policyholder's taxable income. Under Sec 10 (10D), the benefits received from the policy are completely tax-free.
The above mentioned tax-benefits are subject to changes in the tax laws. Conclusion: Linking the death benefits to the market returns may end up in ambiguity which is in the negation of life insurance purpose. The purpose of life insurance is to substitute certainty for uncertainty. For eg. If an individual aged 35, middle class employee who purchased an ULIP policy were to die when index is 15,000, his family stands to get Rs.15 lakhs. But if were to due when index is at 10,000 his family will get Rs. Ten lakhs. ULIP had become the financial market's favorite four letter word. There is a good reason. Agents and sales representatives are earning unbelievable commissions and unfortunately, the bad eggs took advantage of this.
Despite all this. ULIP can be a great instrument to invest in. if you are willing to stick to it for a long period of time- in the range of ten to twenty years. If you have a short span of time at your disposal, it is better to invest in mutual funds and buy term plans to take care of your insurance coverage. At 32.4 percent of GDP, India's savings rate is impressive, but its allocation tells a tale about investment patterns and inefficient choices. People are living longer and that makes financial planning even more critical. The second is transfer of risk. Increasingly the risk associated with financial products is being borne by investors but not by government banks and other investors. The best example of stock is ULIPs. The next one is wide array of choices in financial products. The support system available to investors has changed and investors need to work towards become financially literate. Therefore, investors need to be financially literate. References: 1.Chandnee Sinha(2007) "There is no way you can choose the best Unit Linked Insurance Plan";Rediff.com. 2. Cristopher Crimes (2003) "Unit Linked Plan-Multiply your profits"; Asia Africa Intelligence wire. 3.Dana a.Kerr(2006);"Equity linked Insurance Review; volume 9 Issue-1;pg37-51;Risk Management and Insurance Review. 4.Fotena Rebeka(1996); Mail-Sunday "Yes it could happen to you: Making sure the millions last". 5. Mallikarjun Kesori; Insurancemagic.com,"Will Unit Linked Risk products continue to rule?" 6. Nath Balakrishnan(2003); "Unit Linked Insurance plans-the honey and the sting";Business Line. 7.Putul Sarkar(2002);"Unit Linked Insurance"; www.ingromania.ro/wps/portal/ut/p. 8.Radhika(2006);"Are Unit Linked Plans good?" ICFAI Journal of Management. 9.Sanjay Srivatsav(2004);"Investing-there is a Mutual Fund in my insurance policy";The Indian Express. 10. Srikal BHashyam(2007) "Unit Linked Insurance plans good over long term";Economic Times. 11.Staurt Purdy(2007)Asia Africa Intelligence Wire. 12. Subramaniam &N>Mahalakshmi(2005) "Unit Linked Insurance;All charged up";Business Standard.
doc_121526335.doc
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
Sea Change in Insurance
Market Linked Returns have become the norm today. This is the reason why insurance companies launch Unit Linked Plans with different terms. Important thing is that it stands competitive not only to other insurance products, but also to mutual funds. To gain market power and to protect or enhance profitability. The product must be a little de4veloped. A Unit Linked Plan provides an opportunity for the discerning investor to benefit from the returns available in the capital market without going for direct investment in the capital market. Middle age group people prefer Unit Linked Plan because as they want to take more return by taking risk and to save for future. More plans are to be formulated which assure more capital growth with less risk. The insurance sector in recent past has seen sea change. Customers are now more and more informed and are no more satisfied with traditional policies which are pre-bundled. Keeping this in focus, the latest Unit Linked Plans have been introduced in the market "Unit Linking" is a concept of linking customers investment to the market" Linking implies matching. The value of the policy is linked to the value of net assets of the fund. Introduction: A Unit Linked Plan provides an opportunity for the investor to benefit from the returns available in the capital market without going for direct investment in the capital market. This paper deals with the customers' awareness and their interest towards income, growth and balanced fund. It also deals with how it varies from Mutual funds. Similarity with Mutual Funds: Unit Linked Insurance plans are essentially similar to Mutual Fund products where in the premium is invested in various funds in keeping with policy holders' risk appetite. However the difference in a mutual fund investment is that the money is virtually at call by the customer. In case of Unit Linked insurance plans, it is impossible to predict whether the market will be in an upswing on the day of the policy holders' death or on maturity. The Net Asset Value will reflect the underlying value of assets, which in turn is dependent on the movement of the SENSEX. Traditional Vs. Modern Insurance Plans: Any insurance companies plan have two components: • • Company Customer
If the company takes all the risk on investment and passes all the benefits to the customer, then the risks of investment lies with the company only. All traditional plans like endowment, money back, etc., are such plans. However, if the customer shares the risk of investment, then it is called as universal plan. All linked plans are universal plans. Here, the customer decides where to invest his money and for how long. So, the focus is on the company and overall customers. Apart from the basic difference, there are certain other advantages of Unit linking too. ULIP guidelines by IRDA: The regulator- insurance and development authority (IRDA) finally introduced some much needed guidelines.
1.Term: the ULIP client must have the option to choose a term and must have a minimum tenure of five years. 2.Sum assured: Sum assured may be calculated as term/s "annual premium or five annual premiums whichever is higher. There is no clarity with regards to the maximum sum assured. The sum assured is treated as sacred under the new guidelines; it cannot be reduced during the term of the policy except under certain conditions like a partial withdrawals after sixty years of age. This way the client is at ease the sum assured at his disposal. 3. Premium payments: if less then the first three years premiums are paid, the life cover will lapse and policy will be paying the surrender value. However, if at least, three years premiums have been covered would have to continue at the option of the client. 4. Surrender value : The surrender value would be payable only after completion of three policy years. 5. Top Ups: Insurance companies can accept top ups only if the client has paid regular premiums top up amount exceeds 25% of total basic regular premiums paid till date, then the given certain percentage of sum assured on the excess amount. Top ups have a loss (unless the topups is made in the last three years of the policy. 6. Partial withdrawals: The client can make partial withdrawals only after three policy years. 7. Settlement: The client has the option to claim the amount accumulated in his account after maturity. The policy up to a maximum of five years. For instance, the ULIPs matures on 1st January, 2012 has the option to claim the ULIP bonus till as late as 31st December, 2012. 8. Loans: No loans will be granted under the new ULIP. 9. Charges: The insurance company must state the ULIP charges explicitly. They must also give deduction of charges. 10. Benefit Illustrations : The client must necessarily sign on the sales benefit illustrious. These illustrious, a client by the agent to give him an idea about the returns on his policy. Agents should show an optimistic estimate of 10% and a conservative estimate clients have to sign on these illustrations, because agents are violating these projections projecting higher returns. ULIPs initiated in ? ULIPs were first offered in US in 1976, after being developed and sold successfully in the Netherlands, England and Canada in the name of Variable Life Insurance. Basically it was a type of whole life insurance whose values may vary directly with the performance of a set of earmarked investments. Special features of ULIPs:
1. Transparency: The Unit Linked Plans are said to be transparent because the client knows exactly how much of his money goes in charges and how much for investment. Also investor is able to know where his money is being invested. Everyday NAVs are declared and he comes to know either by Television or print media. As to how the funds are performing. 2. Customer friendly: these plans are more customers friendly as they allow customer to access money after three years instead of waiting for a very long time. As and when customers' income levels increase or decrease, he has a choice to increase or decrease the premium he invests. The exit options are available after lock-in-period of three years. Due to the above reasons, the Unit Linked Plans are said to be more customer friendly. 3.Flexibility:Individual may well ask how ULIPs are any different from Mutual Fund. After all, Mutual Funds offer hybrid balanced schemes that allows an individual to select plan according to different needs. 4. Works like SIP: Rupee cost averaging is another benefit associated with ULIPs. Individuals already heard of the "Systematic Investment Plan" (SIP) which is increasingly being already heard Mutual Fund industry with an SIP, individuals invest their money regularly overtime month/quarter and don't to worry about "timing the stock markets these are peculiar to Mutual Funds. Not many realize that ULIPs also tend to do the same quarterly/half-yearly basis. As a matter of fact, even the annual premium in a Unit Linked Product work, cost averaging principle and added benefit is that individuals can also invest amount in the ULIP either to benefit from other opportunities in the stock market of investible surplus in a particular year that they wish to put aside for the future. Risks in ULIP policies may be listed out like this: • • • • • • The chances of dying in an index downturn. It may not be possible to replace the economic value of an individual to their dependants with these policies. It is not appropriate for a 35 year old middle class man to bet his last penny on the direction of the market. It may not be prudent to link the money an individual wants to leave behind for family to the whims and fancies of stock market mechanics? It may not be appropriate to consider insurance as a means to make big bucks. All risks like portfolio management, reputation risk, environmental risk, systematic risk, credit risk, liquidity risk, etc., may effect ULIP returns.
How ULIPs workout to insurance companies, where premium is paid just for three years of 5 years? ULIPs were shown to be a short cut investment/ insurance avenue-were encouraged to pay premiums only for the first three years and not necessarily over the policy. The reason is because the expenses in the initial three years premium insurance companies recover the entire cost of the policy. What part of your premium will be invested? Premiums can be paid quarterly, half yearly or yearly. These plans give an option to the investor to choose between three fund options – debt, equity and balanced.
Insurance companies charge anywhere between 20-35% as upfront charges for their Unit Linked Plans. So, every time you make your premium payment, only a part of it is actually invested in the fund of your choice. How to access your money? 1. On maturity: Policy matures at the end of the policy term of the policy chosen covers death and other risk will be covered. Balanced units may be redeemed at the prevailing unit price and take the fund value. However, policyholders also have an option to take fund in periodical instalments over the period which may extend to five years. This is called the "settlement option". Money will remain invested in the funds chosen during such period, company will continue to deduct charges other than the risk benefit charges such as the mortality charge. At the end of this five year period, one can redeem the balance units as the then prevailing unit price and pay the fund value. Policy will terminate the moment the balance of units in all the funds reaches zero. 2. On death: In case of one's unfortunate demise before the end of policy term, company will pay the greater of the sum assured (less any withdrawals made during the two year period immediately preceding the intimation of death) and total fund value the family and policy will terminate thereafter. 3. On critical illness: In case one is diagnosed with any of the critical illness covered before the end of the policy term, company will pay the greater of the sum assured (less any withdrawals made during the two yer4a period immedtely preceding the intimation of the diagnosis) and total fund value to the family and policy will terminate thereafter. 4. On surrender or partial withdrawal: In the first three years Insurance plans are long-term investments with significant tax advantages. Neither the IRDA nor the company view them as short-term plans. Therefore, for the first three years known as lock-in-period, one may not surrender the plan or withdraw any portion of the funds from it. If one stops regular premium commitment before three years, live cover will cease and funds will be paid out to the policyholder only at the end of the third year or the end of the revival period of two years, whichever is later. From the fourth year onwards, one can choose to surrender the policy at any time and the surrender value will be value will be value of the units in the fund. The company will enforce surrender only if one stopped paying regular premium account. One can make lump sum partial withdrawals from the funds at any time within the policy term chosen provided: • • The minimum withdrawal amount if Rs.10,000/After the withdrawal, the fund does not fall below one's original annual regular premium amount.
•
After the withdrawal, the fund does not fall below the sum of the single top-ups paid to date.
Easy steps of your own plan: • • • • Step 1 Choose the amount of premium you can afford. Step 2 Choose the amount of lump sum money(sum assured) you desire to have. Step 3 Choose the additional benefits you want to have Step 4 Choose the investment fund or funds you want to have.
Step one: Choose the amount of premium you can afford: This is the premium you need to pay regularly for each policy. The minimum regular premium is Rs.10,000/- per anum. You can pay monthly, quarterly, half-yearly or annually. You can contact your financial consultant about he available range of convenient auto premium payment options. You may also choose to pay adhoc single premium top-up or additional regular premiums depending on your convenience. Step 2: Choose your level of protection: you can choose any amount of sum assured with • • A minimum of (term of your policy/2) times your chosen annual regular premium. A maximum of 30 to 40 times your chosen annual regular premium.
Step 3: Choose the additional benefits you want to have: Insurers offer a variety of valuable protection options to secure the future. For your family you can choose anyone of the following death benefits: • • • • Life option ----- death benefit Extra Life option ----- Death benefit plus accidental death benefit. Life and Health option ------- Death benefit plus critical illness benefit Extra life and health option ------ Death benefit plus critical illness benefit plus accidental death benefit
Step four: Choose the investment fund of funds you wish to have: In this plan the investment risk in your chosen investment portfolio is borne by you. This means that the premiums you pay in this plan are subject to investment risks associated with the capital markets. So, to balance your level of risk and return, making the rightly investment choice is very important and your are responsible for the choices you make. Analysis: • • • Out of 200 respondents 49 percent of the ULIP customers are satisfied towards growth fund, 20 percent are satisfied towards income fund, 31 percent are satisfied towards balanced fund. 90 percent of the respondents are aware of ULIPs and 10 percent not aware. Majority of the people came to know through brokers only.
• • • •
Majority of the people came to know through brokers only. Majority of investors have high confidence in Government securities that is LIC insurance products. The maximum percentage of the investors prefer public sector for safety. The maximum percentage of investors prefer safety, liquidity and returns.
Beneficiaries: If the policy holder has not assigned the policy. • • Policy holder will receive the benefits due on maturity at the end of the policy term. If the policyholder will unfortunately demise, nominee will receive the benefits due.
Charges: The charges under this policy are deducted to provide for the cost of benefits and the administration provided by the company. The charges, when taken together, are structured to give the policy holder better returns and value for money over the long term. Premium allocation charge: This is a premium-based charge. After deducting this charge from premiums, the reminder is invested to buy units. Fund Management Charge(FMC): In the long term, the key to build great maturity values is a low FMC. The daily unit price already includes minimum fund management charge of only 0.8 to 1 percent per anum of the fund fund's value. Surrender charge: This is the charge applied when the policy is surrendered. It is equal to 25 to 30 percent of the difference between the regular premium expected and received in the first two years of the contract. Other charges: The other charges may be like policy administration charges, mortality and other risk benefit charges, switching charges, partial withdrawal charage, revival charges, miscellaneous charges, etc., Tax Benefits (based on current tax laws) policyholders are eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. • • Under Sec 80C, you can save up to Rs.33,990 from tax each year (calculated on the highest tax bracket) as premium up to Rs.1,00,000 are allowed as a deduction from policyholder's taxable income. Under Sec 10 (10D), the benefits received from the policy are completely tax-free.
The above mentioned tax-benefits are subject to changes in the tax laws. Conclusion: Linking the death benefits to the market returns may end up in ambiguity which is in the negation of life insurance purpose. The purpose of life insurance is to substitute certainty for uncertainty. For eg. If an individual aged 35, middle class employee who purchased an ULIP policy were to die when index is 15,000, his family stands to get Rs.15 lakhs. But if were to due when index is at 10,000 his family will get Rs. Ten lakhs. ULIP had become the financial market's favorite four letter word. There is a good reason. Agents and sales representatives are earning unbelievable commissions and unfortunately, the bad eggs took advantage of this.
Despite all this. ULIP can be a great instrument to invest in. if you are willing to stick to it for a long period of time- in the range of ten to twenty years. If you have a short span of time at your disposal, it is better to invest in mutual funds and buy term plans to take care of your insurance coverage. At 32.4 percent of GDP, India's savings rate is impressive, but its allocation tells a tale about investment patterns and inefficient choices. People are living longer and that makes financial planning even more critical. The second is transfer of risk. Increasingly the risk associated with financial products is being borne by investors but not by government banks and other investors. The best example of stock is ULIPs. The next one is wide array of choices in financial products. The support system available to investors has changed and investors need to work towards become financially literate. Therefore, investors need to be financially literate. References: 1.Chandnee Sinha(2007) "There is no way you can choose the best Unit Linked Insurance Plan";Rediff.com. 2. Cristopher Crimes (2003) "Unit Linked Plan-Multiply your profits"; Asia Africa Intelligence wire. 3.Dana a.Kerr(2006);"Equity linked Insurance Review; volume 9 Issue-1;pg37-51;Risk Management and Insurance Review. 4.Fotena Rebeka(1996); Mail-Sunday "Yes it could happen to you: Making sure the millions last". 5. Mallikarjun Kesori; Insurancemagic.com,"Will Unit Linked Risk products continue to rule?" 6. Nath Balakrishnan(2003); "Unit Linked Insurance plans-the honey and the sting";Business Line. 7.Putul Sarkar(2002);"Unit Linked Insurance"; www.ingromania.ro/wps/portal/ut/p. 8.Radhika(2006);"Are Unit Linked Plans good?" ICFAI Journal of Management. 9.Sanjay Srivatsav(2004);"Investing-there is a Mutual Fund in my insurance policy";The Indian Express. 10. Srikal BHashyam(2007) "Unit Linked Insurance plans good over long term";Economic Times. 11.Staurt Purdy(2007)Asia Africa Intelligence Wire. 12. Subramaniam &N>Mahalakshmi(2005) "Unit Linked Insurance;All charged up";Business Standard.
doc_121526335.doc