Success of ULIPS


Insurance customers continue to fancy unit-linked insurance plans despite advice from investment experts to tread with caution. What makes Unit Linked Insurance Plans (ULIPS) such a hit?

ULIPS offer transparency and allow customers to choose the kind of returns they want, depending on their risk appetite and time frame. ULIPS offer various fund options: cash, debt, equity, index linked, ethical funds and hybrid funds, which are combination of some of these funds to minimize risk and give safe returns. It is a very transparent product and the customer knows what their returns are likely to be keeping in mind the market conditions.

ULIPS also allow customers to fine-tune their investment strategy based on market condition. If the market crash or have wild swings, the customer can switch to cash, debt or hybrid funds instead of pure equity funds without any charges. When the market stabilizes he/she can switch back to equity.

Also, ULIPS funds are usually invested in long-term instruments and good companies with great track records. They are managed under the strict guidelines and supervision of IRDA. These guidelines provide for limits to which funds can be invested in a particular sector and even limit within a particular company so that the fund value does not swing on extremes on either a sector or company not performing well.

Life insurance funds are there for long-term and do not have the pressure of withdrawals as mutual funds. The new IRDA guidelines mandate a lock-in period of three years for ULIPS. Therefore, ULIP fund mangers have the flexibility to stay invested over a long term to get the maximum potential form investments.

ULIPS ensure that if something happens to the main breadwinner, the life insurance policy provides support to the family irrespective of whether the markets are down or up. Sum insured is guaranteed, and if the markets are favorable, you could get much more than that — meaning, if the fund value is higher, the customer gets the fund value instead of the sum assured. If the fund value is less, the customer will get the sum insured.

Short-term market corrections are not indicators of the economy — they are the market system’s internal mechanism to keep the markets from heating. Long-term ULIP investors have little reason to worry, as these wild fluctuations are evened out in the long term with the strong Indian domestic economy and global demand for Indian services and products, he says. For an average investor, who does not have the time to track the market and study the global investment scenario, ULIPS serve as the best tool to invest as well as insure.