Unit-Linked Insurance Plans (ULIP)

[nagakiran]

Hi,
I am also investing 15k / year in Metlife ULIP.. But its charges towards insurance are more compared with other ULIPs (ICICI Prudential ULIP). So, if you haven't already invested,i feel its better to go for other ULIPs.

[trade4promo]

Originally Posted by sampann.bose

This is my first post at Traderji.. and i describe myself as a novice who is still learning..well the post have been quite informative on ULIP... I recently had invested in bajaj Allianz ULIP...and frankly speaking i m regretting doin so...

Please don't be emotional!!! When you play with your money, first thing necessary is that don't be emotional?

Originally Posted by sampann.bose

well the reason primarily is...
1) its a complete hotch potch of insurance and investment...
2) My 15K investment is actually 11K .. rest all the money eaten up as insurance charges..
3) i cannot track down the performance of ULIP like the way i do it with MF...
4) NAV's are difficult to find out and payment modes are quite complex...
5) I m tied down paying 15K for next 3 yrs.. no other go..

1) How you can say that "It is Hotch Potch".
2) You invest in ULIP scheme because you want both advantage i.e. insurance with investment, so some portion of your money will be used for your life risk cover.
3) to track down ULIP performance please go respective company website or other website who can give information about your ULIP position. For your convenience I give bajajallianz tracker web link.
When you go www.bajajallianzlife.co.in on footer side you can track your Policies NAV.

Originally Posted by sampann.bose

Right now i do not hv enuf time to elaborate .. but for young investors like me... i can only advise... do not opt ULIP as tax saving instrument... insurance+investment funda is a toral non sense...

opt individually for insurance (term insurance) and keep investment avenues seperate...

the same thing was advised by my financial consultant also .. but i did'nt listened to him... and now i m stuck with this....

No it is not right to say that ULIP scheme is not good as tax saving instrument. When you say that Insurance+Investment is a non sense, it means you are confused when you trade or invest and in confusing mind never do anything, as it will harm you.

If you do full time investing work than you say that investing + Insurance is bad thing but when you are busy with your other professional life, It can give you 2-in-one advantage.

So Your financial consultant is doing their work well. For middle class and not big market participants insurance + investment is good and less time consuming.

[trade4promo]

You are asking this question in wrong place, as here everyone believe that ULIP is a bad thing.

[wcnw]

Hi,
I would not use the word "bad" for ULIP.. but would like to mention that at present a combination of term insurance + investment in mutual funds will give you higher returns..

[trade4promo]

Mutual funds is the 'safety of the principal' guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. Insurance is a provision against risk and it is a device with which man tries to protect himself from risk in life. The recent development in the financial innovation is Unit Link Insurance Policy (ULIP), which covers the concept of mutual fund and insurance.

A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life insurance cover and the premium paid is invested in either debt or equity products or a combination of the two. In other words, it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. In the event of the insured person's untimely death, his nominees would normally receive an amount that is the higher of the sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or products.

Various Schemes

However, there are some schemes in which the policyholder receives the sum assured plus the value of the investments. Various schemes have been tailored to suit different customer profiles and, in that sense, offer a great deal of choice. The advantage of ULIP is that since the investments are made for long periods, the chances of earning a decent return are high. Just as in the case of mutual funds, buyers who are risk averse can buy debt schemes while those who have an appetite for risk can opt for balanced or equity schemes.

In an Web Research I have soo many times come across the arguement that the charges in ULIPs are a lot more than MFs. I would like to share with you all some of my findings when I compared all the charges. (I have not compared mortality charges since MF's don't offer insurance) But Because of Mortality Charge, You have cover option..

Let us say, I wish to invest Rs.60,000 every year in a mutual fund of a leading fund house and also the same amount in ULIPS of HDFC, ICICI and BAJAJ ALLIANZ. The following are the charges I have considered.

MFS
Loading charges = 2.25%
Fund Management Charge = 2.50%

HDFC Unit Linked Endowment Plus
Loading charges = 60% first year, 1% from second year
Fund Management Charge = 0.80%
Admin charge = Rs.240 per annum
Loyalty bonus = 0.1% each year

Bajaj Allianz Unit Gain Plus
Loading charges = 24% first year, 3% from second year
Fund Management Charge = 1.75%
Admin charge = Rs.240 per annum

ICICI Lifetime Plus
Loading charges = 25% first year, 25% second year, 3% third and fourth year, 1% from fifth year
Fund Management Charge = 1.75%
Admin charge = Rs.720 per annum

If my investments grew by 10%, the following is what the returns would look like if I consider all the charges.

* The returns from HDFC Unit Linked Endowment Plus will beat MF returns by 9TH YEAR

* The returns from Bajaj Allianz Unit Gain Plus will beat MF returns by 11TH YEAR

* The returns from ICICI Prudential Lifetime Plus will beat MF returns by 12TH YEAR


CONCLUSION
On the long run(10+ years), ULIPs are infact cheaper than MFs in terms of charges. Hidden charges which are not quiet evident to the eye like fund management charge eat up a major portion of your returns in MFs making them more expensive than ULIPS over time.

So If you go with MF argument than go Direct Stock Market, Not MF. If you like MF than Go with ULIP.

For Deciding which Company offer best than All the Companies are same product with some minor modification. If you want good return with High Risk than Go with Bajaj Allianz and If you want Safety First but some low return than Go with LIC. Means It is upon you to decide.

[bansalg]

That depends on the time horizon you are planning to stay invested.
I would personally prefer to take a Term cover on my life and invest the remaining premium in some good performing MFs.
But if you look at the long term horizon, ULIP's may score over MFs as the Fund managment charges are quite low 0.8% per annumm (HDFC) as compared to around 1.5-2.5% charged by MFs. Also you have to pay entry load of 2.25 % while purchasing MFs while in ULIPs after initial 2 years this comes down to 1%. So if you plan to stay invested for long term , say around over 15 years , ULIP is not that bad choice either.

[manishjain]

Hi All,
I am parially convinced that ULIPs are not better options at least in comparison of a combination of a TERM PLAN & ELSS(or MUTUAL FUND), but the small analysis I did shows smthing else:
See suppose u are going for Bajaj Allianz.
U can take the risk coverage of from 5 times upto 125 times of the premium u are willing to pay(correct me if I am wrong).
so suppose u are willing to pay Rs.15K per annum, & for a higher coverage of 15 Lakhs (100 times of the premium).
so here u end up paying 45K for the coverage of 15Lakhs in ULIP.

I am not discussing the equity aspect of the ULIP, which I suppose is an additional benefit.

Now see Term Plan:
for the same coverage of 15Lakhs for up to the age 60 Years, your premium will be 4.5K (300 per lakhs) per annum approximately(I am assuming that for my age of 23 years).
So for 37 years(60- current age 23), u end up in paying 1.665 Lakhs in Term Plan
without any hope of return untill God calls you.


Now Lets talk about return on ULIP:
1st year invested amount would be 75%approx. : 11250 approx.
2nd year invested amount would be 95%approx. : 14250 approx.
3nd year invested amount would be 95%approx. : 14250 approx.


so total invested money comes upto 40K approx.
I didn't take Admin charges in account ....

so in even if in more then worst condition ULIP consumes all your money in admin charges in 37 years, you are in benefit.

Thats my rough analysis with few flaws.
so would like to invite the views of other members also.

Thanks,
Manish Jain

[snkrb]

Dear All,

As i am new to ULIP. can anyone give the Conclusion which ULIP should i take for a Long Term
In the Above Seniors are mentioned HDFC and Bajaj and LIC
or ICICI which is good once pleas suggest so that i can invest.


Regards
SNB.

[husainkanchwala]

Please give me more details, working procedures of ULIPs.

Which companies offer ULIPs?

Which is the best company?

Regards... Husain Kanchwala (a first-timer, novice investor).

Originally Posted by TATrader

Unit-Linked Insurance Plans (ULIP)

Unit-linked insurance plans, ULIPs, are distinct from the more familiar ‘with profits’ policies sold for decades by the Life Insurance Corporation.

‘With profits’ policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year.

ULIPs also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently.

In ‘with profits’ policies, the insurance company credits the premium to a common pool called the ‘life fund,’ after setting aside funds for the risk premium on life insurance and management expenses.

Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders’ accounts in the form of a bonus.

In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges.

The rest of the premium is used to invest in a fund that invests money in stocks or bonds.

The policyholder’s share in the fund is represented by the number of units.

The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units.

If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices — an equity (growth) fund, balanced fund and a fund which invests in bonds.

In both ‘with profits’ policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents’ commissions.

Which is better, unit-linked or ‘with profits’?

The two strong arguments in favour of unit-linked plans are that — the investor knows exactly what is happening to his money and two, it allows the investor to choose the assets into which he wants his funds invested.

A traditional ‘with profits,’ on the other hand, is a black box and a policyholder has little knowledge of what is happening. An investor in a ULIP knows how much he is paying towards mortality, management and administration charges.

He also knows where the insurance company has invested the money. The investor gets exactly the same returns that the fund earns, but he also bears the investment risk.

The transparency makes the product more competitive. So if you are willing to bear the investment risks in order to generate a higher return on your retirement funds, ULIPs are for you.

Traditional ‘with profits’ policies too invest in the market and generate the same returns prevailing in the market. But here the insurance company evens out returns to ensure that policyholders do not lose money in a bad year. In that sense they are safer.

ULIPs also offer flexibility. For instance, a policyholder can ask the insurance company to liquidate units in his account to meet the mortality charges if he is unable to pay any premium instalment.

This eats into his savings, but ensures that the policy will continue to cover his life.

Are ULIPs similar to mutual funds?

In structure, yes; in objective, no. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon.

But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents’ commissions).

As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over mutual fund managers.

Since policyholder premiums come at regular intervals, investments can be planned out more evenly.

Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

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.

[bansalg]

Though we can't point a company as best , but given the low AMC charges , my personal preference would be HDFC. It offers various schemes for different purpose. Please refer http://www.hdfcinsurance.com for more details.