Smart way of buying Ulips
Consumers have always been sold Ulips as investment plans, which offer a money minting proposition. The truth is, all of these things told to us by our so called financial service advisors and planners as insurance companies prefer to call them are completely fake and baseless.
Since the past couple of years, the insurance industry regulator Irda has been coming up with regular guidelines that have helped consumers immensely. One of such initiative was introduced in September 2010, where the commission on ULIPs was drastically reduced, making them a good investment option. And this is around the time when agent’s stopped selling Ulips and picked up traditional plan, which are a non effective corpus building plan for the consumer.
Due to this dramatic change in the scenario, insurers were forced to offer Ulips which were low on cost and high on returns (since majority premium was invested in markets) to the consumers through an alternate means of distribution, ie, online. But considering the risky nature of a Ulip investment, the consumers found themselves lost in a maze of products, all of which stated that they were the best for them. If I look at the market today, there are four major types of Ulips available:
a.Standard Ulips with allocation charges sold by agents
b.Ulips which could be bought online with low or 0 per cent allocation and other charges. Because of low distribution margin, distribution channels don’t push these products.
c.Ulips which offered capital guarantee, i.e., they assured the policyholder to return the capital invested by him, less of any charges
d. Ulips with highest NAV guarantee, ie, the companies would calculate the maturity returns basis the highest NAV recorded a certain set of time as declared in the policy
Within this four types there are about 500 odd ULIPs and for a customer to choose a better one could be a daunting task. Here are a few steps which could help you:
a. For savings, we need to look at Ulip with a non-guaranteed return plans, in case, the policyholder is below 40 years of age. Or else, for a policyholder above the age of 40 years, should choose for a guaranteed return plans.
b. For corpus building, a traditional Ulip with no guarantee
c. For a retired person a Ulip with guaranteed return is a good option
Premium to be paid
Insurance is a long term contract ranging from anywhere between 10 years to 30 years. Most plans require you to invest regularly as long as your policy term. A policyholder can surrender the policy in case of a financial crunch. But it is always not advisable to stop paying your premium.
Charges and options
What are the charges under the plan, lower the charges higher the return.
The current NAV of the plan and the type of fund options available. Although currently investment performance is not measured while investing in insurance, a customer must check the same vs benchmark. Usually MF customers review fund managers creditability and previous performance of fund, while insurance we usually over-look this, but I will advice customers to review the same.
These 4 simple steps would surely help a consumer to narrow down the list of searches and choose plans which are low on cost and high on efficient returns.
—Author is Chief Marketing Officer, Policy Bazaar