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Unit-linked insurance plan - Wikipedia, the free encyclopedia

Unit-linked insurance plan

From Wikipedia, the free encyclopedia

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that unlike a pure
insurance policy gives investors the benefits of both insurance and investment under a single integrated plan.

Contents
1 History
2 Working Principle
3 Features
4 Types
5 Charges
6 ULIP Controversies
7 Risks
8 Providers
9 References

History
The first ULIP was launched in India in 1971 by Unit Trust of India (UTI).[1] With the Government of India
opening up the insurance sector to foreign investors in 2001[2] and the subsequent issue of major guidelines for
ULIPs by the Insurance Regulatory and Development Authority (IRDA) in 2005,[3] several insurance
companies forayed into the ULIP business leading to an over abundance of ULIP schemes being launched to
serve the investment needs of those looking to invest in an investment cum insurance product.

Working Principle
A Unit Link Insurance Plan is basically a combination of insurance as well as investment. A part of the premium
paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various
equity and debt schemes. The money collected by the insurance provider is utilized to form a pool of fund that is
used to invest in various markets instruments (debt and equity) in varying proportions just the way it is done for
mutual funds. Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both
based on their investment need and appetite. Just the way it is for mutual funds, ULIP policy holders are also
allotted units and each unit has a net asset value (NAV) that is declared on a daily basis. The NAV is the value
based on which the net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another
based on market conditions and the funds performance.

Features

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ULIP policy holders can make use of features such as top-up facilities, switching between various funds during
the tenure of the policy, reduce or increase the level of protection, options to surrender, additional riders to
enhance coverage and returns as well as tax benefits.

Types
There are a variety of ULIP plans to choose from based on the investment objectives of the investor, his risk
appetite as well as the investment horizon. Some ULIPs play it safe by allocating a larger portion of the invested
capital in debt instruments while others purely invest in equity. Again,1562 all this is totally based on the type of
ULIP chosen for investment and the investor preference and risk appetite.

Charges
Unlike traditional insurance policies, ULIP schemes have a list of applicable charges that are deducted from the
payable premium.[4] The notable ones include policy administration charges, premium allocation charges, fund
switching charges, mortality charges, and a policy surrender or withdrawal charge.[5] Some Insurer also charge
"Guarantee Charge" as a percentage of Fund Value for built in minimum guarantee under the policy.

ULIP Controversies
It is estimated that Investors lost Rs.1.5 trillion due to insurance mis-selling. Most news papers in India covered
various stories and critically reviewed these insurance institutions which mis-sold these ulips to the small
investors. Mint newspaper famously quoted it as "The Ulip rip-off was an institutional defrauding of the small
investors" and covered it in an article Ulip Rips off Consumers.[6] Capitalmind, an excellent investor caring news
outfit covered it as early as 2007 to educate consumers on how not to get defrauded by these ulip schemes.[7]
A Public interest litigation was filed as well [8] While hundreds of thousands of small investors lost their hard
earned money, some even committing suicides, the agents enjoyed their commissions and the executives of these
insurance companies collected Crores in bonuses by mis-selling these ulips.

Risks
Since ULIP (United Linked Plan) returns are directly linked to market performance and the investment risk in
investment portfolio is borne entirely by the policy holder, one needs to thoroughly understand the risks involved
and ones own risk absorption capacity before deciding to invest in ULIPs.

Providers
There are several public and private sector insurance providers that either operate solo or have partnered with
foreign insurance companies to sell unit linked insurance plans in India. The public insurance providers include
LIC of India, SBI Life and Canara while and some of the private insurance providers include Reliance Life,
ICICI Prudential, HDFC Life, Bajaj Allianz, Aviva Life Insurance and Kotak Mahindra Life.

References
1. ^ "MFs and ULIPs are different in their basics and purpose"
(http://www.financialexpress.com/news/mfsandulipsaredifferentintheirbasicsandpurpose/154976/0). The
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Financial Express. 21 December 2005. Retrieved 17 December 2012.

2. ^ "Govt may hike FDI cap in insurance, pension next week" (http://zeenews.india.com/business/insurancenews/govt-may-hike-fdi-cap-in-insurance-pension-next-week_60736.html). Zee News. 21 September 2012.
Retrieved 17 December 2012.
3. ^ "Life Insurance Products in India" (http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?
page=PageNo212&flag=1&mid=IRDA+Journal). Insurance Regulatory and Development Authority. Retrieved
17 December 2012.
4. ^ "ULIP Knowledge Centre" (http://www.hdfclife.com/KnowledgeCentre/ULIP.aspx). HDFC Life. Retrieved
17 December 2012.
5. ^ "All About ULIP: FAQs and Charges" (http://www.policyonline.in/2013/02/all-about-ulip-unit-linkedinsurance.html). Policy Online. Retrieved 15 Feb 2013.
6. ^ |url = http://www.livemint.com/Money/Bn8wj4mBbZP3hAI0la0sXL/Investors-lost-15-trillion-due-toinsurance-misselling.html%7C
7. ^ http://capitalmind.in/2007/04/how-ulips-can-loot-you-real-example/
8. ^ |url= http://timesofindia.indiatimes.com/city/lucknow/PIL-against-insurance-cos-for-ULIPfraud/articleshow/5841955.cms%7C

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