Q1. What is a Unit Linked Fund? Unit Linked Fund is a pool of the premiums paid by the policyholders which is invested in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund depends on how the investments in the fund would perform. The fund is managed by the insurance companies. Q2. What does a Unit stand for? A Unit stands for a portion or a part of the underlying segregated unit linked Fund. Q3. What is Net asset value? Net Asset Value (NAV) is the value per unit calculated in rupees. Q4. What is a Fund Value and how is it calculated? Fund Value is the product of the total number of units under the policy and the NAV. The fund value for the purpose of claims, surrenders or any other clause stated shall be calculated on the basis of NAV. Q5. What do I get at the end of my policy term? The benefit received at the end of policy term is termed as maturity benefit. The policyholder is entitled to receive fund value as maturity benefit. Q6. What should I verify before signing the proposal? You should verify: Q7. What will my family receive if something happens to me? In the unfortunate event of death during the term of the policy, the person appointed as nominee shall receive the higher of sum assured or the fund value. There are also certain ULIPs in market which give sum of Fund value & sum assured as death benefit. Q8. Is investment return guaranteed in ULIPs? Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund. Q9. Can I change / switch my asset allocation? Yes, you can change the investment pattern by moving from one fund to other fund (s) amongst the funds offered under a particular product. Such a change between funds is termed as a Switch. There will be a flat charge levied for any switch over and above the free switches. Q10. What is Premium Re Direction? Premium Re-Direction is the facility that allows a policyholder to modify the allocation of amount of renewal premium into a different investment pattern from the option (investment pattern) exercised at the inception of the policy. Q11. Can I partially withdraw from my policy? Yes, you can encash / withdraw a part of the fund anytime after completion of three years, subject to surrender charges as applicable to each individual plan. Q12. Can I foreclose my policy? Are there any charges applicable? Yes, you can foreclose your policy by Surrendering the policy. Surrender means terminating the contract once and for all. On surrender, the surrender value is payable to you which is Fund Value less the surrender charge. Surrender Charge means a charge levied on the fund value at the time of surrender of the policy. Q13. What does redemption mean? Redemption means encashing the units at the prevailing NAV offered by the company. This is applicable in case of exercising partial withdrawal, switch, maturity, surrender, settlement option or in the case of payment of death benefit. Q14. What is the Settlement Option? Settlement Option also known as periodical payment, means an option available to the policyholder to receive the maturity benefit as a structured payout over a period of up to 5 years after maturity. Q15. What is the date of commencement? Date of Commencement of Policy as shown in the policy certificate is the date on which the age of the life assured and the term of the policy are calculated and the same are shown on the policy certificate. Q16. What is a Regular Premium Contract? Regular premium contract means a ULIP where the premium payment is in level and paid in regular intervals like yearly, half-yearly or monthly. Q17. What is my monthly due date? Monthly due date means the date in any subsequent calendar month corresponding numerically with the date of the commencement of the policy. In the event that there is no date in any subsequent calendar month corresponding numerically with the commencement date, then the due date shall be the last date in that subsequent calendar month. Q18. What does “Cover Cessation Date” mean? Cover Cessation Date (Date of Maturity) as shown in the policy certificate is the date on which the policy contract comes to an end and is the date on which the maturity benefit becomes payable.
Friday, May 1, 2009
ULIP Faq
How to Choose ULIP?
HOW to CHOOSE a ULIP THAT WORKS BEST for YOU
The wide range of ULIPs available in the market might make it difficult for a consumer to choose the correct ULIP. However if you were to follow a few simple steps choosing the right ULIP can be a smooth process.
Understand the concept of ULIPs thoroughly
Do your homework well and read as much as you can about ULIPs as you can before investing. Read the literature available on ULIPs on the web sites and brochures circulated by insurance companies. This will help you know the benefits and structure of the ULIP.
Focus on your requirements and risk profile
Identify a plan that is best suited for you keeping in mind your risk appetite. In case you have a high-risk appetite, opt for a more aggressive fund option (an option that invests higher percentage in equities) and vice versa.
Understand the peculiarities of the plan
Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, fund management charges and mortality charges.
Examine the performance of the plan
Compare the performance of the plan with benchmark indices like BSE Sensex or Nifty in the past two or three years to get a better idea about the performance. Ensure that you can easily get information about your NAV when you need it. Thoroughly understand the flexibility and redemption conditions of an ULIP.
Understand the charges levied on the product
Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, the fund management charges and mortality charges. You not only need to understand the charges in the first year but also through the term of the policy.
Compare ULIP products of different insurance companies
Compare products of different insurance companies in terms of premium payments, cost structure, performance of the scheme (equity as well as debt schemes), additional facilities such as top-up premium and free switch between different fund options, flexibility in terms of increasing or decreasing protection, reporting structure and flexibility in redemption.
ULIP Charges
WHAT are the DIFFERENT KIND OF CHARGES in a ULIP?
Unlike conventional traditional products charges are segregated in ULIP & thus made known to the customer.
You can know the charges applicable on your ULIP through:
* Sales benefit illustration : A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know exactly how much money is deducted as charges & what is invested.
* Brochure : A brochures informs you about the various charges & their purpose applicable on your policy.
* Advisor : You should enquire your advisor about all the charge applicable on your policy.
Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are:
* Policy administration charges
These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.
* Premium allocation charges
These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund.
* Mortality charges
Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.
* Fund management charges
A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC
The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time.
The above can be very simply broken down into:
What a ULIP is
A plan which gives complete clarity about the various charges deducted and why it’s being deducted and so how your fund will grow over time.
What a ULIP is not
A plan in which you don’t know where your money is going or what is happening to it.
Other ULIP Charges
ULIPs can easily be customized to suit one’s needs & requirements. This is primarily due to range of features that ULIPS offer to the customer. Below mentioned are few charges applicable in case you have opted for an additional feature.
ULIP BENEFITS
| APPLICABLE CHARGES |
RIDERS: Riders are additional or supplementary benefits that are bought along with a main life insurance plan. Some of the commonly offered riders are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. In case you opt for a Critical illness rider you get additional protection from 9 critical illnesses. | Insurance companies levy rider charges in case you opt for riders.
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SWITCH: ULIPs not only allow you to invest your money in fund options with various debt – equity exposure but also give you the option to switch between different funds. For example, you can switch money from a fund with 100% equity to a balanced portfolio, which has 60 per cent equity and 40 per cent debt. | Your insurance company may charge you a fee for switching your funds Generally only a limited number of fund switches are recommended in a year as a ULIP is a long-term investment tool therefore most of the companies allow a certain number of switches each year free of charge, with subsequent switches, subject to a minimal charge.
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TOP UP: One of the unique feature offered by ULIP is Top Up where you can make additional contribution over & above the regular premium.
| Insurance companies deduct a certain percentage from the top-up amount as charges. These charges are usually lower than the regular charges that are deducted from the annual premium.
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| SURRENDER: You may decide to surrender (premature partial or full encashment of units) your policy before the term of the plan. | Surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. These charges are levied as a percentage of the fund value or as a percentage of the premium.
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Why buy ULIPs
ULIPs are dynamic plans and are flexible by nature and hence allow for changes and high degree of customization in the plan as opposed to most of the financial plans which once purchased cannot be modified. It is because of embedded characteristics of transparency, flexibility, liquidity & goal based savings that ULIPs have emerged as preferred investment option today.
The following subsections will not only help you to understand various attributes of ULIPs but also guide you to use these features to manage your policy.
Flexibility
- Flexibility to change your life cover: ULIPs give you the flexibility to choose your sum assured (insurance cover) at the time of policy inception. Moreover, some ULIPs allow you to increase your sum assured over the term of the plan. This is crucial as your protection needs keep on changing with time .Typically, greater the financial liabilities you have such as repayment of a home loan, greater will be your need for protection.
- Flexibility to change premium amount: With ULIPs you can easily change premium amount as most ULIPs provide you the option to increase or reduce premiums after a certain period of time to match your premium paying capability. Another distinguishing feature of ULIP is Top up which is an additional contribution over & above regular premium so that if you receive extra money today you can invest the amount in your policy & maximize your investment gains.
- Flexibility to opt for a rider: ULIPs also enable you to customize the policy with optional riders to enjoy additional protection. Riders are additional or supplementary benefits that are bought along with the main insurance policy. Some of the commonly offered riders by most insurance companies are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. a critical illness rider cover major critical illnesses like heart attack etc. In case of contracting any of the above illness, the insurance company pays the insured amount.
- Flexibility to choose your fund option: Most of the ULIPs come with an in - built range of fund options to choose from –ranging from aggressive funds to conservative funds so that you can decide to invest your money in line with your investment preferences and needs. What’s more, ULIPs even come with the option of switching between different fund options so that you are able to reap maximum benefits from your investments.
Transparency
One of the key advantages that ULIPs offer is complete transparency which makes the working of a ULIP abundantly clear to the investor. Thus, you are empowered to make informed decisions on how to best use your ULIP.
- Benefit Illustration
As a customer it is your right to ask for a sales benefit illustration. Sales benefit illustration will help you understand how premium paid by you is utilized & what are the charges deducted year by year, by the insurance company for the term of the plan . It will also illustrate how your policy will grow in accordance with the choosen sum assured & premium. In fact IRDA has mandated that all insurance companies use two scenarios with 6 % & 10 % return rate to depict future returns.
- Brochures and key feature documents
While benefit Illustrations play a significant role in explaining the quantitative aspects of ULIPs, it is also important for you to know the other features and benefits which the ULIP offers. All insurance companies come out with brochures for prospective customers to go through & understand the plan thoroughly. You should ask your insurance advisor to provide brochure of the ULIP you intend to purchase. Once a policy gets issued, your insurer will send you a key feature document capturing all the essential features of the plan. This is to ensure complete comprehension of the plan purchased.
- Free-look period
ULIPs also offer you a distinct feature that no other financial product offers as of now. It is called Free-look period which is a 15 day window during which you can close the policy & get paid back the entire premium less charge borne by company in issuing the policy in case you are unhappy with the product.
- Net Asset Value
It is critical that you monitor the performance of your policy on a regular basis. This will help you ascertain whether you are on right financial track or not. To help you do so all life insurance companies publish the NAV of different fund options on their website on a daily basis so that you can track the performance of your policy on a regular basis. This will also help you make informed decisions when it comes to comparing fund performances.
Everyone needs to save for their important life goals. One of the prudent ways to do so is by investing in ULIPs which are long-term systematic investment options designed to address key financial goals. ULIPs help you cultivate a disciplined savings pattern which ensures that the money being set aside will go towards the fulfillment of the specific objective. In the absence of such a focused approach, there is a high possibility of savings towards one objective getting utilized for an immediate short-term requirement, thus jeopardizing the long-term goal. ULIPs are a potent safeguard against such a tendency.
Tax Benefits
ULIPs are an efficient tax saving instrument too .The tax benefits that you can avail in case you invest in ULIPs are described below:
* Life insurance plans are eligible for deduction under Sec. 80C
* Pension plans are eligible for a deduction under Sec. 80CCC
* Health insurance plans and critical illness riders are eligible for deduction under Sec. 80D
* The maturity proceeds or withdrawals of life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section
Tuesday, April 28, 2009
ICICI Prudential - ULIPs
Most importantly, what are ULIPs? Here, you will find all the information you need to set your mind at ease about how to invest in ULIPs, and which ULIP is right for you.
ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by you.
Simply put, ULIPs are structured in such that the protection element and the savings element are distinguishable, and hence managed according to your specific needs. In this way, the ULIP plan offers unprecedented flexibility and transparency.
Working of ULIPs
It is critical that you understand how your money gets invested once you purchase a ULIP:
When you decide the amount of premium to be paid and the amount of life cover you want from the ULIP, the insurer deducts some portion of the ULIP premium upfront. This portion is known as the Premium Allocation charge, and varies from product to product. The rest of the premium is invested in the fund or mixture of funds chosen by you. Mortality charges and ULIP administration charges are thereafter deducted on a periodic (mostly monthly) basis by cancellation of units, whereas the ULIP fund management charges are adjusted from NAV on a daily basis.
Since the fund of your choice has an underlying investment – either in equity or debt or a combination of the two – your fund value will reflect the performance of the underlying asset classes. At the time of maturity of your plan, you are entitled to receive the fund value as at the time of maturity. The pie-chart below illustrates the split of your ULIP premium:
