PRO INVESTOR ULIP
Unit Linked Insurance Plans (ULIP)were introduced five years ago approximately and they have become very popular because of their dual role offering risk cover and wealth build up; and their versatility to cater to individuals with varying risk levels.
There are two components to the ULIP- the protection and the saving component. The protection element is the underlying insurance cover while the saving element is that portion of the premium of that is invested by the insurance company on clientâ€™s behalf in an investment fund of his or her choice.
There are generally four-five investment funds on offer, each carrying a different debt to equity ratio. Investment funds with a higher equity component are suitable for the more risk oriented investors while those with higher debt component are suitable for the risk-averse. These funds work on the same line as the mutual funds, right down to the net asset value of investorâ€™s holdings. Depending on the amount of the money invested and the NAV, the investor will be allotted units, which will be credited to his or her account. The value of the investment account will be a function of the number of units that the client holds and the NAV of the fund.
Facility to withdraw:
In this unique offering one can withdraw from the investment account in case of an emergency. However this unique feature was being misused. People started viewing ULIP as short term Investment option. The protection element was completely ignored. Further, ULIP were being wrongly sold by the insurance agents by representing incorrectly that ULIP are a short-term investment option and not as a type of insurance policy. Agents did not share complete information on product.
Greater transparency introduced by Authority:
In order to bring greater transparency and to ensure that ULIP would be used correctly, the Insurance Regulatory Development Authority (IRDA) introduced a new set of guidelines for ULIP sometime in 2005. IRDA asked the insurance company to comply with these guidelines by 1st July 2006 and to make necessary changes in the existing ULI Plans that were on offer. Most insurers have changed their existing products or have issued new ones complying with the new norms.
The revised guidelines governing the ULIP are,
The minimum sum assured would be equal to either 50% of the total premium paid during the term of the policy or 5 times the yearly premium whichever is higher. Further, this sum would be guaranteed.
The investor can undertake withdrawals from the sum assured only after he or she attains 60 years of age and from the investment account only after the completion of the three policy years.
The minimum policy term is 5 years.
Stopping of premium payment:
If the insurer or investor stops making premium payments after three policy years, then the premium amount can be adjusted from the investment account, till such time as the balance in that account reduces to one yearâ€™s premium. After that, further non-payment would lead to policy lapsing.
Increasing the premium payment voluntarily by the investor:
This is called â€˜top upâ€™ premium. The amount of top-up premium cannot be more then 25% of the annual premium paid by you. One cannot undertake withdrawals from the top up premium for a period of three years, unless they have been made in the last 3 years of the term.
The investor has the option of receiving the survival benefits either in a lump sum or in 5 installments.
Date of investment:
If the premium payment is undertaken by ECS, local check or demand draft, then the date of investment will be that pertaining to the date of the premium receipt, provided the premium is received by the insurance company before 4.15pm of the same day. In case of out station checks , the date of investments will pertain to the date of realization of the check.
A statement of account issued at the end of each policy year and also as and when a transaction takes place. It gives information such as number of units added as a result of further investments or reduced dew to withdrawals; The NAV at which the debit or credit took place and other relevant information required by the investor.
Finally the last guideline of this article is that to ensure agents or company reps do not sell ULIP on promising abnormally high returns to the investor, IRDA has indicated that all the marketing and sales literature related to ULIP should carry complete product information.