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Tuesday, 26 November 2013

Ulips are still good bet If you understand the product well

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OVER the years, life insurance has usually been synonymous with life protection for the family of the policyholder upon his death. However, these days, it offers a lot more. In order to meet demands for better returns on insurance, unit-linked insurance policies (Ulips) were designed as a dual-benefit product.


This product is a unique way to invest in the equity market along with getting the benefit of a life cover at the same time.


What makes Ulips even better is that it is one of the most transparent financial products at present available. Ulips have appeared more beneficial for the customer after having gone through a lot of regulatory changes in the recent past. Some of the reasons that it is still a good bet are as mentioned below.


Better returns: Following the revised guidelines for Ulips, commissions and charges have been capped.


These days, the policyholder has an opportunity to get higher/ better returns on their investment, as a larger amount will be going into the selected fund(s).


Longer lock-in period: Keeping your money secure is an essential part of your Ulip investment. Following the revision of the guidelines for Ulips, the lock-in period has been increased from three years to five years, thus giving the corpus more time to grow. Also, since Ulips are essentially long-term tools, the increased lock-in period becomes attractive for those looking at long-term savings, thus ensuring more protection for a longer period.


Lower surrender charges: In the past, Ulips had a 30-40 per cent surrender charge. However, with the introduction of the discontinuance fund, there is a reduction on the cap on discontinuance charges, which means the policyholder does not have to forgo large amount of money as surrender charges.


No policy lapse: Previously, non-payment of a premium could result in a policy lapse. However, following the revised guidelines, it is not so. In case of discontinuance, that is, a situation that could arise from non-payment of premium, the fund value gets transferred into a separate fund known as the discontinued policy fund/ policy account value till the policy is revived or up to the end of the revival period, whichever is earlier. The policy remains in force with the risk cover as per the terms and conditions of the policy. This fund gives minimum guaranteed interest rate of 4 per cent on the discontinued fund (subject to change in line with interest rates provided by the savings accounts of certain banks, during the period the policy was in discontinuance).

 

Balance your portfolio: The biggest advantage of unitlinked products is that they are flexible tools, as they allow you to safeguard the investment against the vagaries of the market through the fund switch option. Few insurers offer unlimited free fund switching options, allowing you to alter the proportion of equity and debt investments, to help you achieve best returns in accordance to your age, risk appetite and financial goal.


The biggest advantage of Ulips is that this type of plan comes with the twin benefits of life protection as well as a marketlinked growth for the investment. Since this product is a bouquet of multiple benefits such as risk cover, extra coverage in the form of riders, long-term investment, tax benefits; bundled in one along with a good spread of risk, it can be treated as a comprehensive financial tool.

Changes in the Ulip guidelines with regards to reduced remuneration have resulted in attrition in its distribution.


However, for an aware customer, it is still one of the best options available today in the financial market.

Happy Investing!!

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You can write back to us at PrajnaCapital [at] Gmail [dot] Com

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