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CONTENTS
Sr.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Particulars Introduction Types Of Insurance LIC ULIP Buying ULIP--- An Important Note Types Of ULIP Plans How It Differ From Mutual Funds Systematic Planning Of ULIP 5 Points To Selecting A ULIP Case Study Is Investment In ULIP A Risky Option Important News Six Points To Note After Selecting A ULIPs Prominent Companies In ULIP Future Of ULIP Bibliography Page No. 1. 2. 4. 5. 20. 21. 23. 24. 30. 34. 40. 43. 44. 48. 49. 50.

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Introduction to Insurance
What is insurance The business of insurance is related to the economic value of the assets. Every asset has a value. The asset would have been created through the efforts of the owner. Every asset is expected to last for a certain period of time during which it will perform. After that benefit will not be available. None of them will last forever. The owner of is aware of this and so he can manage the affairs and ensure by the end, the substitute is available. Thus he makes sure value or income is not lost. However the asset may get lost earlier. An accident or some unfortunate event may destroy it or make it non-functional. In that case the owner and those deriving benefits there from, would be deprived from the benefit and the planned substitute would not have been ready. This is an adverse or an unpleasant situation. Insurance is a mechanism to reduce such situation.

Brief History of Insurance

The business of insurance started with marine business. Traders used to gather at Lloyd` s coffee house in London agreed to share their losses to goods while being carried by ships. The losses used to occur by pirates who robbed on the high seas or because of spoiling the goods or sinking the ship. The first insurance policy was introduced in 1583 in England. In India the, insurance begin in 1870 with life insurance being transacted by English company, The European and the Albert. The first Indian
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insurance company was Bombay Mutual Assurance Society Ltd., formed in 1870. This was followed by Oriental Life Assurance Co. in 1874, The Bharat in 1896 and The Empire of India in 1897. Later the Hindustan cooperative was formed in Calcutta, the United India in madras, the Bombay life in Mumbai, the National in Calcutta, the New India in Mumbai, the Jupiter in Mumbai and Lakshmi in New Delhi. By the year 1956, when the life insurance was nationalized and the Life Insurance Corporation was formed.

Types Of Insurance
Insurance Are Of Various TypesSome of Them Are
1234567-

Business Insurance Dental Insurance Deposit Insurance Earthquake Insurance Flood Insurance General Insurance Group Insurance Health Insurance Home Insurance Insurance Protection Insurance
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10- Keyman Insurance

11- Life 12- Loan

4. 13- Marine

Insurance Insurance Insurance

14- Parametric 15- Perpetual 16- Pension 17- Pet

Term Assurance And Indemnity Insurance

Insurance Of Premium Life Insurance

18- Protection 19- Return

20- Reinsurance
21- Safe

Funded Health Care Life Insurance Insurance

22- Term

23- Terrorism 24- Title

Insurance Credit Insurance Insurance Life Insurance Insurance

25- Trade 26- Travel

27- Universal 28- Vehicle 29-

Vision Insurance Insurance Life Insurance Compensation Insurance

30- Wage

31- Whole

32- Workers

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Life insurance
As the business of ULIP is linked to life insurance I would like to brief about a bit of life insurance. A human being is an income generating asset. One` s manual labour, professional skills and business acumen are the assets. This asset can also be lost through early death, or through sickness or disabilities caused by accidents. Accidents may or may not happen. Death will happen but the timing is uncertain. If it happens at the time of one` s retirement, when it could be expected that the income of the person would normally cease, the person concerned could have made some other arrangements to meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, there can be losses to the person and their dependents. Insurance is the necessary tool to help those dependents. A person, who may have made arrangements for the needs, after his retirement would also need insurance. This is because the arrangements would have been made on the basis of some expectations like, likely to live for another 15 years, or that children will look after him. If any of the expectations do not become true, the original arrangement would become inadequate and there would be difficulties. Living too long can

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be as much a problem as dying too young. Both are the risks, which need to be safeguarded against. IRDA (Insurance regulatory and development authority), 1999 is an act governing life insurance and ULIP.

ULIP
ULIP stands for Unit Linked Insurance Plan. It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in the 1960s and is popular in many countries in the word. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In todays times, ULIP provides solutions for insurance planning, financial needs, financial

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planning for childrens future and retirement planning. These are provided by the insurance companies or even banks.

When the stock markets are volatile and unpredictability becomes a hindrance to encourage further investment, it leaves the customers perplexed. To top it all if the debt market doesnt attract you because of its low interest rate, investment may seem customary. However, lately banks have been offering an 8% interest rate per annum for investors. A reason good enough to invest in Fixed Deposits (FD). Whats more? The investments in FDs qualify for tax benefits too under Section 80 C of the Income Tax Act, 1961, provided the minimum tenure selected is five years. If the inclination to invest in stock market still persists but are still skeptical, try via Unit Linked Insurance Plan (ULIP) route. It provides cushion to those who are risk averse. ULIPs offer insurance protection along with the option to invest in the stock market. The best part of investing in stocks via ULIPs is that you can choose the funds suiting your risk profile. If you know that a particular fund is at its high and is performing well, with the switch over option you can move to that fund. You can do that when the fund in which you have invested is performing poorly or you feel the returns are high in some other fund. The funds offered by ULIPs
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give the investors an exposure to both high and low equity investments. Based on your risk profile, make your pick.

Simple Explanation Of ULIPs

Suppose that you buy a ULIP when you are 30 years old. The sum assured is Rs 5 lakh and the term is 20 years. The premium that you will pay over a period of 20 years will work out to around Rs 25,000 to Rs 30,000 depending on the company you choose. In a term policy, your premium will remain fixed throughout the term of the policy. So that means, if you opt to invest in a mutual fund and buy a term policy, the amount of investment and cost of insurance will not change over a period of time. For a similar example as above, if the 30 year old were to take a term insurance policy for Rs 5 lakh, he would end up paying anywhere between Rs 40,000 to Rs 50,000 as insurance premium. This vast difference in cost of insurance is mainly because of cost of distribution and administration as also the margins of the insurer. In a ULIP, costs and margins are recovered commonly between the investment portion and the insurance portion. However, if you were to buy a term policy and a mutual fund, the insurance company will recover its costs of distribution and administration as well as margins. The
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mutual fund would again recover the same costs from your investment portion.

Flexibility
A ULIP will give you flexibility of increasing your life cover, while maintaining the same premium. This is done by simply reducing your investment allocation. So suppose you have a risk cover of Rs 5 lakh and would like to increase it to Rs 6 lakh, you can still continue to pay the same amount of premium. The only difference would be that the amount deducted towards the risk cover would be more and therefore, the amount invested would be less. Says Puneet Nanda of ICICI Pru. Life Insurance, The reason why ULIPs have become popular is because they offer huge amount of flexibility during the course of the policy. You can vary your mix between protection and savings or within savings, your fund mix. If you have a term policy and would like to increase your life cover, your only option would be to buy another term policy. This would mean paying administration charges all over again.

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Theres more to the flexibility. With a ULIP you dont have fear that your policy will lapse if you were unable to pay your premium. The cost of insurance will be taken out of your existing investment to keep the policy going. But if you fail to pay premium on your term policy, it will lapse.

Expenses
If you were to look at the expenses of a ULIP as compared with the expenses of a mutual fund, there is a difference. In a ULIP charges are front loaded, which means, most of the charges are recovered within the first few years. That is why it does not make sense to invest in a ULIP if you are looking at a short term. Look at a mutual fund if you are looking at a time horizon of 3-5 years. In the long term, charges of a ULIP even out and compare well with a mutual fund. So if you are looking for a long-term investment avenue with an insurance cover that goes with it, then ULIP is the product for you and if you are looking at a product that helps you focus purely on investment and returns over a medium term, then go for a mutual fund. Experts say

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the two products are different and ideally you should have both in your portfolio.

As financial planners, we get queries from our clients on how to go about managing their finances. We were recently faced with a rather interesting query related to ULIPs. In this article we discuss the query and our solution for the same. Let us look at the information available,

The clients age is 38 years and he wants a life insurance cover for Rs 5,000,000. He has an above-average risk appetite.

He has been recommended a ULIP (unit linked insurance plan) by his insurance agent with a sum assured of Rs 5,000,000 till he reaches the age of 84 years. This works out to the client being insured for a tenure of 46 years (i.e. 84 - 38).

The premium paying term however is only ten years and the actual premium he will have to pay per annum is approximately Rs 894,000.

The client has also been advised by his agent to consider investing his premiums in the Aggressive (as has been defined by the insurance

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company in question) option, which allows upto 35% exposure to equities. We have always maintained that ones interests would be best served if he keeps his life insurance and investment needs distinct.

Given below is our solution based on the clients needs. The insurance component To begin with, we knew from our interaction with the client and based on the Human Life Value Calculations that he is underinsured. An immediate action point for him would be to buy a term plan. And considering his annual income, he would need to buy a term plan for more than the sum assured recommended on the ULIP (i.e. Rs. 5,000,000). Even if we were to consider his sum assured to be Rs 5,000,000 (as per the ULIP) for a term plan, the annual premium he would have to shell out would be approximately Rs 30,000 per annum for a 30-Yr period. The investment component Having taken care of the clients insurance needs, now lets shift our focus to his investments. We took into consideration the clients current financial portfolio. He had a sizable portion of his portfolio invested in fixed income instruments like bonds and fixed deposits. Bearing this in mind, our view was he did not need to have another debt-heavy (ULIP
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with a 65% debt component) product in his portfolio. Instead what his portfolio needed was a higher equity component; this would not only balance his portfolio but also ensure that the portfolio reflects his true risk profile. It was also relevant that the client invest in equities since he was considering his investments from a long-term (over 30 years) horizon. This could be achieved by investing in equity-oriented mutual funds. Mutual funds can offer several benefits:

Several studies have shown that over the long term, equities give a higher return vis--vis fixed income instruments like bonds and government securities. And given that the clients investment horizon is of over 30 years, this is an ideal time frame to reap the rewards of investing in equities. Also, over a 30-Yr period, a 100% equity mutual fund is better geared to outperform a ULIP portfolio with a 65% debt component.

ULIP tend to be expensive propositions (vis-a-vis mutual funds) during the initial years. However, over longer time horizons, the expenses balance out and ULIPs work out to be cheaper as compared to mutual funds. However, even if the lower expenses of a ULIP vis--vis that of a mutual fund scheme were to be considered, the latter would still surface as the better option.

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Several mutual funds also have a track record to boast of. Personalfns recommended equity-oriented funds have a proven track record extending over several years and across market cycles. ULIPs do not have much of a track record to show for; in fact most ULIPs are yet to experience a bear phase.

Investing in a mutual fund portfolio will offer the benefit of diversification to the client. The investor will reap the reward of diversifying across several fund management styles. On the other hand, by investing all his money in just one ULIP, the client would be committing his entire corpus to just one style of investment. This can prove to be quite risky over the long term.

You can make adjustments to your mutual fund portfolio. If you believe you have made a wrong investment decision, you can redeem your investment in a particular mutual fund and invest in another one. Such adjustments are not entirely feasible in a ULIP.

The Tax Aspect

we also had to contend with Section 80C tax benefits. However, given the clients annual income, the Section 80C tax benefits were being taken care of by way of Employees Provident Fund (EPF) as well the recommended term plan. The client therefore can invest in regular diversified mutual funds and not necessarily in tax saving funds (ELSS).

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As can be seen, term plans combined with mutual funds have the potential to add considerable value to an investors portfolio. In our view individuals should first ensure that they are adequately covered by opting for a term plan. Then they can either opt for ULIPs for the investment component or as we have shown, they can consider mutual funds. Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the cases with mutual funds, investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. Despite the seemingly comparable structures there are various factors wherein the two differ. In this article we evaluate the two avenues on certain common parameters and find out how they measure up.
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1. Mode of investment/ investment amounts

Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity. This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts.
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2. Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors. Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller
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corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".

3. Portfolio Disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our interactions with leading insurers we came across divergent views on this issue. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio

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disclosures on the other hand can enable investors to make timely investment decisions.

4. Flexibility in Altering Asset Solution

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load. On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. This can prove to be very useful for investors, for example in a bull market when the ULIP investor's equity component has appreciated, he
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can book profits by simply transferring the requisite amount to a debtoriented plan.

5. Tax Benefits

ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds well, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor's marginal tax rate. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As always, it is vital
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for investors to be aware of the nuances in both offerings and make informed decisions.

Buying ULIPs? An important noteUnit linked insurance plans have caught the fancy of individuals over the past few years. In fact, most individuals opting for life insurance now go in for ULIPs as opposed to term plans or endowment plans. Therefore, it becomes important for individuals to understand what to look for in a ULIP before finalising one. I outline 5 parameters that ULIPs need to be evaluated upon before individuals zero-in on a unit-linked product. ULIPs differ significantly from traditional endowment plans in the way they invest their monies. ULIPs have an investment mandate, which allows them to 'shift' assets freely between equities and debt. This is unlike saving-based plans like endowment plans, which invest predominantly in specified debt instruments like bonds and government securities. The amount of money invested in equity has the potential to make a significant difference to the returns that the plan can generate over the long run.

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Types of ULIP Plans (Features)

ULIP is a contractual savings-cum-insurance plan that offers the following features:

High returns Maturity bonus Life insurance cover Safety of capital Life protection Investment and Savings Flexibility Adjustable Life Cover Investment Options Transparency Options to take additional cover against Death due to accident Disability Critical Illness Surgeries Liquidity Tax planning
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Who can invest in ULIPs?

It is open to any resident of India who is above 18 years of age. Individuals less than 55 years and 6 months of age can join the plan for 10 years and those less than 50 years and 6 months for 15 years contributing 1/10th and 1/15th of the target amount every year, respectively.

ULIPs: How it differs from mutual funds

Even as ULIPs are selling like hot cakes, one common doubt in most peoples mind is why they cannot buy a mutual fund and top it up with a term insurance policy instead of buying a ULIP? There are a number of matters to consider here the cost of life insurance, the reason for investment, the investment horizon and so on. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs.

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But still here are some basic differences ULIPs

Investment amountsDetermined by the investor and can be modified as well. No upper limits, expenses determined by the insurance Expenses Portfolio disclosure Modifying asset allocation company Not mandatory* Generally permitted for free or at a nominal cost Section 80C benefits are available on all Tax benefits ULIP investments

Mutual funds
Minimum investment amounts are determined by the fund house. Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory Entry/exit loads have to be borne by the investor Section 80C benefits are available only on investments in taxsaving funds

* There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a
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quarterly basis is mandatory, others state that there is no legal obligation to do so.

How ULIPs can make you rich!(systematic planning of ULIPs)- by Personal finance.

Ever since unit-linked insurance plans (ULIPs) made their debut, they have become a subject of much discussion and debate. On the one hand, they were a trifle too complicated for individuals not yet exposed to the stock markets; on the other hand, they were much-maligned because of the 'unusually high' costs. As ULIPs made their presence felt, insurers were more open to discussing the costs and how they evened out over the long term. This and the flexibility that ULIPs offer became important points that made individuals consider adding them to their portfolios.

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Today, more individuals are open to using the ULIP-way to create wealth over the long term. Here we outline exactly how ULIPs can help you fulfill that responsibility. If you are between 25 and 35 years of age You are young, probably married and even have kids. If you are the sole breadwinner in the family, then you have quite a few responsibilities to fulfill right from planning for your child's education/marriage to planning for your own retirement to providing for the family in your absence. The last responsibility is the most critical and ironically it is the easiest and cheapest one of the lot to fulfill. At Personal fn, we have always been votaries of term insurance -- the cheapest way to get a life cover for you. Term insurance is also insurance in its 'purest' form, in other words there is no savings element in it, which ensures your premiums are very low. There is no better product to provide for your family in case of an eventuality and all individuals must consider taking a term plan. Term insurance of course takes a huge burden off your chest as also your wallet. But it still leaves you with a problem. If term insurance is only going to take care of the 'risk' element, who is going to take care of the 'savings' part.

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This is where ULIPs come in. Of course, that is not to say that ULIPs do not have an insurance element, they do, but it is limited largely to the earlier years and after a point they don the mantle of an investment product. So how can ULIPs help you save for child's education/marriage, planning for retirement and other investment-related objectives? ULIPs can do all this and more because they come with a lot of variety. Consider this; except for term insurance (because it does not make sense), just about every life insurance product has a ULIP option. So you have endowment ULIP, child plan ULIPs and pension ULIPs. As a matter of fact, there are some life insurance companies that only have ULIP products; they don't have traditional endowment, pension and child plans at all! What that tells you is that if you are willing to take on some risk, a ULIP can help you meet a lot of your financial objectives. If you are looking to set aside some money for your child's education, the 5%-6% return on an endowment plan may not even take care of inflation, let alone provide for a medical or MBA degree. The return you earn on a child plan should not just counter inflation, it should be enough to cover the cost of education.

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And the way cost of education is spiralling, your insurance plan must work very hard. Given their equity component, ULIPs are ideally placed to fulfill this role. As we mentioned before, ULIPs are flexible; there are various options within a ULIP with the equity component varying right from 0% to 100%. This ensures that you are able to select an option that best suits your risk profile. Let us understand how ULIPs can be tailor-made to serve your financial planning needs. You are in the 25-35 years age bracket. Your most pressing financial objectives are providing for your child's future and your own retirement. ULIPs can help you achieve both. Although you can take a single endowment ULIP to achieve both objectives, we think it is more prudent to make a demarcation between the needs and take separate ULIPs dedicated to each objective. Opt for a ULIP child plan to provide for your child's higher education, marriage and seed capital for business to name a few needs. One way to handle this multi-faceted objective is to take a ULIP money-back plan. This way you get monies at regular intervals to address multiple needs. The other important plan that individuals must consider taking earlier on their lives is a pension plan. Building a corpus to face the rigours of retirement should be given the priority it deserves.
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Again, a long-term investment objective like retirement planning could do with an equity 'push'. Here is where a ULIP pension plan can add value to your retirement portfolio. Likewise a ULIP endowment plan can help you meet investment objectives like buying property or setting up a business for instance.

If you are between 35 and 45 years of age

By the time you reach the 35-45 age bracket, some of your existing ULIPs are probably nearing maturity. For instance, if you had taken a ULIP child plan earlier on, it is likely to mature in this age bracket to coincide with the need (higher education/marriage) you had in mind at the time of taking the ULIP. However, if you married late or did not begin planning your finances at an early stage in your life, now is the time. If you haven't insured yourself as yet, go for a term insurance plan. The advantage of taking a term plan at a slightly advanced age is that you have a better idea of how your lifestyle is likely to pan out going forward. In terms of costs, term plans remain your cheapest option no matter when you take one.

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You can opt for some of the ULIPs we mentioned for individuals in the 25-35 years age bracket depending on your needs. Remember, unlike endowment, which gets really expensive at an advanced age, ULIPs because of the way they are structured, do not turn out that expensive. If you are over 45 years of age In this age bracket, it is likely that you are insured. However, you still need to review your insurance cover taking into consideration the changes in your lifestyle, income, needs and financial commitments. Beef up your insurance cover through a term plan. By this time, your ULIP pension plan will have matured. You can then opt for an annuity, immediate or deferred, depending on your requirements.

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5 very important steps to selecting the right ULIP

How to select the right ULIP For a product capable of adding significant value to investors' portfolios, ULIPs have far too many critics. After having interacted with a number of investors who were very disillusioned with their ULIPs investments; often the disappointment stemmed from poor and inappropriate selection. I present a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right ULIP. 1. Understand the Concept of ULIPs Do as much homework as possible before investing in an ULIP. This way you will be fully aware of what you are getting into and make an informed decision. More importantly, it will ensure that you are not faced with any unpleasant surprises at a later stage. Our experience suggests that investors on most occasions fail to realise what they are getting into and unscrupulous agents should get a lot of 'credit' for the same. Gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on
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financial Web sites, newspapers and sales literature circulated by insurance companies. 2. Focus on Your Need and Risk Profile Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). Your risk appetite should be the deciding criterion in choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is likely to be more suited. Similarly your existing investment portfolio and the equity-debt allocation therein also need to be given due importance before selecting a plan. Opting for a plan that is lop-sided in favour of equities, only with the objective of clocking attractive returns can and does spell disaster in most cases. 3. Compare ULIP Products from Various Insurance Companies Compare products offered by various insurance companies on parameters like expenses, premium payments and performance among others. For example, information on premium payments will help you get a better picture of the minimum outlay since ULIPs work on premium payments

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as opposed to sum assured in the case of conventional insurance products. Compare the ULIPs' performance i.e. find out how the debt, equity and balanced schemes are performing; also study the portfolios of various plans. Expenses are a significant factor in ULIPs; hence an assessment on this parameter is warranted as well. Enquire about the top-up facility offered by ULIPs i.e. additional lump sum investments which can be made to enhance the policy's savings portion. This option enables policyholders to increase the premium amounts, thereby providing presenting an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches (i.e. change the asset allocation of your ULIP account) from one investment plan to another. Some insurance companies offer multiple free switches every year while others do so only after the completion of a stipulated period. 4. Go for an Experienced Insurance Advisor Select an advisor who is not only conversant with the functioning of debt and equity markets, but also independent and unbiased. Ask for references of clients he has serviced earlier and cross-check his service standards.
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When your agent recommends a ULIP from a given company, put forth some product-related questions to test him and also ask him why the products from other insurers should not be considered. Insurance advice at all times must be unbiased and independent; also your agent must be willing to inform you about the pros and cons of buying a particular plan. His job should not be restricted to doing paper work like filling forms and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis. 5. Does Your ULIP Offer A Minimum Guarantee? In a market-linked product, protecting the investment's downside can be a huge advantage. Find out if the ULIP you are considering offers a minimum guarantee and what costs have to be borne for the same.

This step is very important as investors mainly go for minimum guarantee plans of any ULIPs.

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A very famous case study on mis-selling of ULIPs.

Cases of ULIPs being mis-sold never cease to amaze us. One such case involved a 55-Yr old client who was sold a Rs 500,000 pa premium ULIP by a private sector bank. Even though we have seen several cases of ULIPs (unit-linked insurance plans) being sold to the most improbable of investors, this case had us completely taken aback. One look at the facts of the case and we are sure that even our visitors will be left with a similar feeling. Facts of the case: 1. The client is 55 years old 2. She does not have a regular source of income, so investing for a regular income was her top priority 3. Her only investments are in fixed deposits (FDs) 4. She will inherit a huge sum of money at the age of 60 years
5.

She is not very literate in matters of investment and finance

6. She is not very liquid (i.e. has less cash) It is apparent from the client's age and investment profile that a Rs 500,000 ULIP, which was invested completely in equities, was the last thing she needed. In fact, there was no reason to recommend anything even remotely risky. While ULIPs could be suitable to individuals based
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on their risk profile and investment objectives (your financial planner is best placed to assess the suitability of a ULIP), in our client's case there was little scope for a ULIP to add any significant value to her portfolio. Add to this the fact, that being relatively illiquid; she could not afford to pay the premiums for the following years.

Experts review
Let us examine why ULIPs were unsuitable for her. 1. To begin with, she was not explained what ULIPs are all about; this is not surprising since a lot of clients we know have bought ULIPs without appreciating how they can contribute to their investment/insurance objectives. Given that she was not very well versed even with the basics of investment and insurance, we believe selling her a Rs 500,000 ULIP amounted to professional misconduct of the highest order and coming from a reputed bank, this is even more alarming. 2. Now selling a ULIP to someone who does not need it is one thing, and selling her a Rs 500,000 ULIP is another thing that ranks as even more atrocious. We fail to understand how a Rs 500,000 ULIP could be of any assistance to a 55-Yr old lady, who has no source of income and who is just looking to remain invested in a low risk avenue that provides a regular income until she turns 60 years when her father's sizeable inheritance will come her way.
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3. While ULIPs can add value to the individual's investment/insurance portfolio, two points are necessary to achieve this; a) the ULIP should be for a long enough tenure and b) ULIP expenses should be competitive, else for someone who does not need the life cover, mutual funds are a better option. It is apparent from our client's details that she did not qualify on the tenure parameter to justify a ULIP. With a 5-Yr time frame before she inherited her father's wealth, she just did not have the minimum number of years necessary to wipe out the heavy initial expenses on the ULIP. ULIPs incur high expenses (sometimes as high as 60 per cent of the premiums) in the initial years; so an investor is not going to earn a (significant) return on the ULIP in the initial years until the high expenses are recovered. Performance of stock markets (in the case of equity-heavy ULIPs) play a critical role in recovering the expenses, but at the time of opting for a ULIP there is no way to ascertain how stock markets are going to fare over the short-to-medium term (don't believe your agent if he claims to know better, he is lying). So for our client, a high-expense investment like ULIP, which is a suitable proposition over the long-term, was a loss-making proposition from day one, because she was not interested in an investment that was longer than 5 years (i.e. until she turned 60 years old). She simply needed a one-time low-risk interval investment (providing an income) that would
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serve her well over 5-Yr tenure. And since she was not in a position to pay the premium even in the second year, effectively she lost out on her capital as well. Not to mention that there was no monthly income being generated by the product! Bank washes hands off the mis-selling When Personal finance met the client and learnt about the mis-selling of the ULIP, we urged her to take this up strongly with the bank, which sold her the ULIP. To her dismay, the bank shirked responsibility over the mis-selling and professed helplessness in view of the fact that the agent (who mis-sold the ULIP) had been transferred to another city! To those who agree with the bank's excuse, we would like to state that any selling (or mis-selling) that happens on the bank's premise is the bank's business whether that person is the bank's employee or a third-party employee or whether he is still with the bank or has been transferred or has quit the bank altogether. If the bank disagrees with what we have said, then they should put up a notice to that effect in the branch. How we would have done it differently? As financial planners, a big advantage with this particular case was the clear-cut time frame (i.e. 5 years) that the client had in mind. She just wished to be invested in an avenue for 5 years that would generate regular income; after 5 years she would inherit her father's money. Also it was abundantly clear to us from our interaction with the client that she
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had a lower risk appetite. In view of these two points, we would have recommended that: 1. The client invested in an FMP (fixed maturity plan) over shorter tenures and roll over at the end of the tenure. To provide for a source of income she could opt for the dividend option. Being market-linked FMPs provide an opportunity to generate higher returns (than FDs) depending on how debt markets are placed at a point in time. 2. A structured mutual fund product would have been suitable for the client. These mutual funds are predominantly invested in debt to provide capital preservation; the smaller equity component (usually 15-20 per cent of assets) provides for capital appreciation. These funds, although not capital-guaranteed investments, offer low-risk investors the opportunity to clock higher returns than debt funds at marginally higher risk. Again, she could opt for the dividend option. 3. The Post Office Monthly Income Scheme is an option for investors looking for regular income. Among all fixed income investment options, POMIS is one of rare avenues that assures a monthly income. We would have recommended that the client make the most of this opportunity to earn an assured monthly income. 4. She could enhance her investments in FDs. Many companies (like HDFC for instance, have a monthly income option on their FDs. The
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client could invest in FDs of such companies to avail of the monthly income option. In our view, investing in ULIPs was a pointless exercise that should never have been recommended to the client. It neither fulfilled her investment objective nor coincided with her investment tenure. As we have shown, both these critical parameters could have been fulfilled better by low-risk FMPs, debt funds & FDs.

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Is investment in ULIPs a risky option?

Has the recent performance of the stock market left you with a regretful feeling for not being a part of the soaring market? Do you have a flavour for the market but also want some wise investment at the same time? If yes, then Unit Linked Insurance Plans (ULIP) is the answer. ULIPs also known as investment plans is a perfect package that comes with insurance coverage and investment options. So that leaves you with the opportunity of investing in equities. But you do need to keep in mind that the investments in stocks are subject to the vagaries of the market. The volatility in equity markets can keep you uneasy and disturbed since you wouldnt like to see your reserve being affected. You need to know your risk appetite and then make a choice accordingly by choosing an appropriate fund. ULIPs offer you the option to invest in anyone of the four funds. If you are not inclined to take a lot of risk then you can certainly invest in secured or balanced fund. However the best part of having an investment plan is that you can switch from one fund to another, which you find less risky. For example if Mr. Patil has invested in growth fund and has found that the investment in this particular fund is going to fall then he does have the choice of switching over to another fund which he finds safer, it could be a growth, balanced or any other fund. For example if you choose LICs
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Jeevan Plus', the policyholder has to choose any one from the four funds, which are Bond, Secured, Balanced and Growth funds. Within a given policy year, four switches are allowed free of charge. After the completion of one year, Rs.100 is charged for per switching of the fund. Two factors considered responsible for the advent of ULIPs are firstlythe entry of private insurance companies in the insurance sector and the second factor being the decline of assured returns on endowment plans. Private players proved their innovation with the introduction of ULIPs. The performance of these plans has also been quite impressive with the recent figures revealing that the private insurers have acquired a business of Rs 4,768 crore whereas LIC managed to obtain Rs 2,758.6 crore. The performance of stock market especially in the last few months has made ULIPS all the more popular. It is the only option that lets you to be a part of the stock market and at the same time offers insurance cover. It is like the best of two things clubbed into one. And honestly things couldnt get any better when we bring its other features into the limelight. An innovative aspect of ULIPs is the 'top-up' facility. A top-up is a onetime additional investment that is paid apart from the annual premium of the policy. This feature works well when you have a surplus that you are looking to invest in a market-linked avenue. ULIPs also have the facility
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that allows you to skip premiums if you have paid your premiums regularly for the first three years. For instance, if you have paid your premiums dutifully for the first three years then you have missed out the payment of fourth year's premium then the insurance company will make the necessary adjustments from your investment surplus and will make sure that the policy remains active. But it is always advisable to pay the premiums regularly to avoid troubles. Such facilities are not available with any other policy. This makes it a differentiating factor when compared to policies like endowment, term or money back policies. Another important feature is that ULIPs disclose their portfolios regularly. This gives you an idea of how the money is being managed. Another important aspect is its liquidity factor. Since ULIP investments are NAV-based it is possible to withdraw a portion of your investments before maturity. It is possible only after the completion of the lock-in period. Such facility is not available with in a traditional endowment policy. With ULIPs one can also avail the tax benefits which is offered under Section 80C. This is subject to a maximum limit of Rs 1, 00,000. Investment plans are particularly for those looking for security with an inclination for the share market. To make it easier to choose, LIC offers Future Plus and Jeevan Plus which are unit linked plans.

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To sum it up in all we can say that investment in a ULIP is not that risky as insurance part is covered and the risk is just that of a stock market.

Important news in print media regarding ULIPs 1. IRDA Keen to Ensure ULIPs Transparency.
In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. As a continuation of the process, we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. Further they have been approved by the IRDA. Companies having actuarial funded products have been asked to withdraw them over a period of time. They can continue to sell the
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products till then and customers, both existing and new, can continue to enjoy the benefits of these products and have no reason to feel concerned. To reiterate, our objective is to remove complexity in all unit linked products and ensure comparison across ULIPs of all companies. The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority.

2. Six Points to Note, After Selecting To Investing In A ULIPSince ULIPs offer a lot of flexibility, you need to keep some points in mind to optimize the benefits associated with them.

Notice we have recommended ULIP child plans/pension plans and even term insurance for most individuals. When you opt for these plans it is important you do this after taking your insurance consultant into confidence. He is the one who is going to help you with the numbers, so you need to tell him exactly what you are looking for in an insurance plan. Remember there is an insurance cover associated with ULIPs. Since it is also likely that you have other insurance plans like term
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and/or endowment, it is important you have a clear idea of exactly how much your insurance cover is worth after considering all your insurance plans. This number will prove helpful when you review your insurance cover at regular intervals.

Likewise, ULIPs also have an investment element. You are likely to have investments in mutual funds, stocks, bonds and fixed deposits as well. You need to add up the market value of all these investments while calculating your investment worth. This number will prove useful when you wish to beef up your investments in a particular asset. ULIPs derive their 'power to perform' from equities. When you have a lot of aggressive ULIPs in your portfolio it means that you are overweight on equities. Add to this your investments in stocks and equity funds, and your exposure to equities increases even further. To temper your equity exposure, it is generally advisable to opt for conservative/balanced ULIPs (maximum 50% equity exposure). Even if you are a high-risk investor, you must gradually shift your assets to a conservative ULIP option as your age advances. Financial prudence dictates that risk reduces as age increases; this needs to reflect in all your investments including ULIPs. Like with all investments, it is prudent to diversify your ULIP investments. This is necessary due to several reasons with financial
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prudence being the most important reason. Varying flexibility levels in ULIPs across insurance companies is another factor that should make you opt for a ULIP from more than one insurance company. Varying level of expenses in ULIPs is another reason to opt for ULIPs across insurance companies to keep expenses on the lower side.

3. IRDA keen to ensure ULIPs transparency.

In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. As a continuation of the process, we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. Further they have been approved by the IRDA.

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Companies having actuarial funded products have been asked to withdraw them over a period of time. They can continue to sell the products till then and customers, both existing and new, can continue to enjoy the benefits of these products and have no reason to feel concerned. To reiterate, our objective is to remove complexity in all unit linked products and ensure comparison across ULIPs of all companies. The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority.

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Prominent companies in the ULIP1- Reliance life insurance 2- SBI life insurance 3- Aviva life 4- Bharti AXA life 5- Birla sun Life 6- HDFC Standard life 7- ICICI Prudential life 8- ING VYASA 9- Kotak mahindra (old) 10- LIC life 11- Met life 12- Sahara life 13- Shriram life

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Future of ULIP- The future of ULIP is pretty bright as we

can see the companies in the ULIP and mainly insurance sector is increasing day by day. I have some information to add to this. When I had attended a seminar on Accounting standards at IMC, (Indian merchants chamber) there the speaker , Mr. S. Clement had told us that according to the data collected by the CMIE ( Centre for Monitoring Indian Economy), the Insurance sector is the most capital generating sector in the recent years, in the services sector even ahead of banking. As per the data published in the economic times January 3 ,2008 issue by the Invest India Incomes and Savings Survey 2007, the demand forecasts for life insurance products is given. In that, the distribution of people who are planning to buy products of life insurance is given. There the state of Bihar tops the list, where around 16, 00,000 buyers are expected to buy life insurance products. This is followed by Andhra Pradesh, Maharashtra, and Gujarat. It is also to be noticed here that IRDA has planned to enhance the penetration of insurance in rural areas. In this endeavor it has planned to allow grocery shops to sell the insurance products in their shops like they sell recharge coupons for mobiles So hereby, we can say that life insurance is developing so fast that it is now reaching rural India where 90% of population has no insurance protection against losses.
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Bibliography

Worldwide Web Sites

www.moneycontrol.com www.irda.org www.personalfn.com

Newspapers Economic Times Times Of India

For u khushboo Thank you,

Unit Link Insurance Plan (ULIP)