Here's a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right unit-linked insurance plans(ULIP's).
But before we get there, let's understand what ULIP's are all about?
For the generation of insurance seekers who thrived on insurance policies with assured returns issued by a single public sector enterprise, unit-linked insurance plans are a revelation.
Traditionally insurance products have been associated with attractive returns coupled with tax benefits. The returns part was often so compelling that insurance products competed with investment products for a place in the investor's portfolio.
Perhaps insurance policies then were symbolic of the times when high interest rates and the absence of a rational risk-return trade-off were the norms.
The subsequent softening of interest rates introduced a degree a much-needed rationality to insurance products like endowment plans; attractive returns at low risk became a thing of the past. The same period also coincided with an upturn in equity markets and the emergence of a new breed of market-linked insurance products like ULIP's.
While in conventional insurance products the insurance component takes precedence over the savings component, the opposite holds true for ULIP's.
More importantly ULIP's (powered by the presence of a large number of variants) offer investors the opportunity to select a product which matches their risk profile; for example an individual with a high risk appetite can shun traditional endowment plans (which invest about 85% of their funds in the debt instruments) in favor of a ULIP which invests its entire corpus in equities.
In traditional insurance products, the sum assured is the corner stone; in ULIP's premium payments is the key component. ULIP's are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same.
Investors have the choice of enhancing their insurance cover, modifying premium payments and even opting for a distinct asset allocation than the one they originally opted for.
Also if an unforeseen eventuality were to occur, in case of traditional products, the sum assured is paid along with accumulated bonuses; conversely in ULIP's, the insured is paid either the sum assured or corpus amount whichever is higher.
Insurance seekers have never been exposed to this kind of flexibility in traditional insurance products and it would be fair to say that ULIP's represent the new face of insurance.
While few would dispute the value-add that ULIP's can provide to one's insurance portfolio and financial planning; the same is not without its flip side.
For the uninitiated, understanding the functioning of ULIP's can be quite a handful! The presence of what seem to be relatively higher expenses, rigidly defined insurance and investment components and the impact of markets on the corpus clearly make ULIP's a complex proposition. Traditionally the insurance seeker's role was a passive one restricted to making premium payments; ULIP's require greater participation from both the insured and the insurance advisor.
As is the case with most evolved investment avenues, making informed decisions is the key if investors in ULIP's wish to truly gain from their investments. The various aspects of ULIP's dealt with in this publication will certainly further the ULIP investor's cause.
How to select the right ULIP
For a product capable of adding significant value to investors' portfolios, ULIP's have far too many critics. We at Ram financial consultancy have interacted with a number of investors who were very disillusioned with their ULIP's investments; often the disappointment stemmed from poor and inappropriate selection.
We 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 ULIP's
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 realize what they are getting into and unscrupulous agents should get a lot of 'credit' for the same.
Gather information on ULIP's, the various options available and understand their working. Read ULIP-related information available on 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 ULIP's work on premium payments as opposed to sum assured in the case of conventional insurance products.
Compare the ULIP's 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 ULIP's, hence an assessment on this parameter is warranted as well.
Enquire about the top-up facility offered by ULIP's 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.
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.
Email Us : sriram.adviser@gmail.com
Contact us: 09986128592
Wednesday, January 16, 2008
Sunday, July 29, 2007
How ULIPs can make you rich!
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. ( Not all are with high cost, there are very few ULIPs with less cost ).
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.
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 Personalfn, we have always been votaries of term insurance -- the cheapest way to get a life cover for yourself.
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.
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.
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.
Sponsored link for this article is Birla Sun Life Insurance
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.
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.
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.
6 points to note
Since ULIPs offer a lot of flexibility, you need to keep some points in mind to optimize the benefits associated with them.
* There are so many new plans which offer much more flexibilities than the old schemes for more information you can talk with you insurance consultant.
* 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 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 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.
For more information please contact :
Venkata Ramana
email id : sriram.adviser@gmail.com
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.
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 Personalfn, we have always been votaries of term insurance -- the cheapest way to get a life cover for yourself.
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.
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.
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.
Sponsored link for this article is Birla Sun Life Insurance
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.
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.
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.
6 points to note
Since ULIPs offer a lot of flexibility, you need to keep some points in mind to optimize the benefits associated with them.
* There are so many new plans which offer much more flexibilities than the old schemes for more information you can talk with you insurance consultant.
* 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 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 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.
For more information please contact :
Venkata Ramana
email id : sriram.adviser@gmail.com
Saturday, July 14, 2007
Buying insurance? Here's a checklist
Since the nationalisation of the life insurance business in 1956, the state-owned Life Insurance Corporation of India had been the only source of life insurance to the Indian consumer for over 40 years.
With the opening up of the insurance industry in 2000 and the activation of private participation, the Indian insurance landscape has changed entirely. Today the consumer is presented with unprecedented choice and will benefit from the liberalization and competition in numerous ways.
This article aims to help customers select their insurance from the abundance of choices available.
LIC has done an admirable job in the past 40+ years. Nonetheless by its own admission, market penetration in insurance has stagnated at 12-15 per cent. India has more than 250-million strong middle class segment, much of which is uninsured or underinsured. As a result, life insurance premia has been contributing a mere 3.2 per cent of the GDP.
Obviously, there is need to raise this figure to globally competitive standards of two-digit share percentages. As in every sector of world economies, competition will benefit the consumer through enhanced market savvy and consumer responsiveness of players. With the entry of the private players, the Indian insurance individual retail market is estimated to be worth $25-27 billion in the next 7-8 years.
Most certainly, premium contribution to our GDP will increase to double-digit share percentages, up from the current 1.4 per cent of GDP.
In many international markets, the product offerings of the insurance industry are fairly similar. The true differentiators come from delivery and service. Consumers while studying the market for an insurance plan should certainly look at an innovative and comprehensive product line in companies. This helps in times of repeat sale and for addressing differing needs at various stages of one's life.
Certainly, the service the company offers is an important criterion for careful examination. An agent trained to consider long time needs, who is helpful and believes in full disclosures for a consumer to make informed decisions about his / her financial planning, will help in making the choice.
Global experience has shown that life insurance is never bought but always sold and the only real way of reaching consumers is face to face. Hence personalized service that includes regular reviews, updates and the flexibility to adapt insurance solutions to suit consumer's changing needs are also important.
A strong business foundation and a robust distribution network are some of the essentials while considering any life insurance company. The reputation and standing of a company are also indicators that reveal the kind of products and service one can expect.
Sponsored link for this article is Shriram Life Insurance
Insurance companies are periodically rated by international rating agencies for their financial stability and ability to settle claims. Large insurance companies receive high ratings from rating agencies, like Standard & Poor's, Moody's Investors Services and A M Best.
A company's reputation will also indicate its ethics, its integrity and best practices. These metrics too are significant and go a long way to inspire confidence in consumers and also shareholders. Companies with solid a reputation usually believe in fairness to all stakeholders (consumers, shareholders, employees and agents) and it is reflected in all aspects of the business including financial prudence in all its dealings.
Insurance coverage is essential for every individual. How much and what type of insurance one needs will differ with every individual. Review the following with your financial advisor to arrive at the life insurance solutions that suits your needs:
* Review your own insurance needs and circumstances. Choose the kind of policy that offers benefits that most closely fit your needs.
* Make sure you can afford the premium payments. If the premium amount increases later, can you still afford it?
* Do not sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
* Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
* Do not drop one policy and buy another without a thorough study of the new policy and the existing one. Replacing your insurance may be costly.
* Read your policy documents carefully. Ask your advisor or company about anything that does not appear clear to you.
* Review your life insurance programme with your financial advisor or company every few years to keep up with your changing requirements.
* Your insurance policy gives you long term protection while offering immediate tax benefits. Your insurance needs are usually greater than the need for a tax benefit in the current financial year.
Insurance in the future will no longer be bought as a savings tool but will be sold for protection. An insurance policy offers much more than returns from tax planning and investment. It offers one the ability to plan for unforeseen events that could affect the individual and the family's financial well being adversely.
Life insurance is universally acknowledged as an effective tool to eliminate risk, substitute certainty for uncertainty and ensure timely aid of the family in the unfortunate event of the death of the breadwinner. Hence life insurance provides assistance if premature death occurs which may leave a dependent family to fend for itself and also for old age without visible means of support.
Buying life insurance cannot be compared with other investment decisions especially stock market investments where one waits for the right time to buy or sell. As far as life insurance goes, the best time to buy it is right now!
With the opening up of the insurance industry in 2000 and the activation of private participation, the Indian insurance landscape has changed entirely. Today the consumer is presented with unprecedented choice and will benefit from the liberalization and competition in numerous ways.
This article aims to help customers select their insurance from the abundance of choices available.
LIC has done an admirable job in the past 40+ years. Nonetheless by its own admission, market penetration in insurance has stagnated at 12-15 per cent. India has more than 250-million strong middle class segment, much of which is uninsured or underinsured. As a result, life insurance premia has been contributing a mere 3.2 per cent of the GDP.
Obviously, there is need to raise this figure to globally competitive standards of two-digit share percentages. As in every sector of world economies, competition will benefit the consumer through enhanced market savvy and consumer responsiveness of players. With the entry of the private players, the Indian insurance individual retail market is estimated to be worth $25-27 billion in the next 7-8 years.
Most certainly, premium contribution to our GDP will increase to double-digit share percentages, up from the current 1.4 per cent of GDP.
In many international markets, the product offerings of the insurance industry are fairly similar. The true differentiators come from delivery and service. Consumers while studying the market for an insurance plan should certainly look at an innovative and comprehensive product line in companies. This helps in times of repeat sale and for addressing differing needs at various stages of one's life.
Certainly, the service the company offers is an important criterion for careful examination. An agent trained to consider long time needs, who is helpful and believes in full disclosures for a consumer to make informed decisions about his / her financial planning, will help in making the choice.
Global experience has shown that life insurance is never bought but always sold and the only real way of reaching consumers is face to face. Hence personalized service that includes regular reviews, updates and the flexibility to adapt insurance solutions to suit consumer's changing needs are also important.
A strong business foundation and a robust distribution network are some of the essentials while considering any life insurance company. The reputation and standing of a company are also indicators that reveal the kind of products and service one can expect.
Sponsored link for this article is Shriram Life Insurance
Insurance companies are periodically rated by international rating agencies for their financial stability and ability to settle claims. Large insurance companies receive high ratings from rating agencies, like Standard & Poor's, Moody's Investors Services and A M Best.
A company's reputation will also indicate its ethics, its integrity and best practices. These metrics too are significant and go a long way to inspire confidence in consumers and also shareholders. Companies with solid a reputation usually believe in fairness to all stakeholders (consumers, shareholders, employees and agents) and it is reflected in all aspects of the business including financial prudence in all its dealings.
Insurance coverage is essential for every individual. How much and what type of insurance one needs will differ with every individual. Review the following with your financial advisor to arrive at the life insurance solutions that suits your needs:
* Review your own insurance needs and circumstances. Choose the kind of policy that offers benefits that most closely fit your needs.
* Make sure you can afford the premium payments. If the premium amount increases later, can you still afford it?
* Do not sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
* Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
* Do not drop one policy and buy another without a thorough study of the new policy and the existing one. Replacing your insurance may be costly.
* Read your policy documents carefully. Ask your advisor or company about anything that does not appear clear to you.
* Review your life insurance programme with your financial advisor or company every few years to keep up with your changing requirements.
* Your insurance policy gives you long term protection while offering immediate tax benefits. Your insurance needs are usually greater than the need for a tax benefit in the current financial year.
Insurance in the future will no longer be bought as a savings tool but will be sold for protection. An insurance policy offers much more than returns from tax planning and investment. It offers one the ability to plan for unforeseen events that could affect the individual and the family's financial well being adversely.
Life insurance is universally acknowledged as an effective tool to eliminate risk, substitute certainty for uncertainty and ensure timely aid of the family in the unfortunate event of the death of the breadwinner. Hence life insurance provides assistance if premature death occurs which may leave a dependent family to fend for itself and also for old age without visible means of support.
Buying life insurance cannot be compared with other investment decisions especially stock market investments where one waits for the right time to buy or sell. As far as life insurance goes, the best time to buy it is right now!
Tuesday, June 26, 2007
4 ULIP 'sales pitches' you must know & Some Tips
Given the trend in recent times, there is a fair chance that the advisor would recommend an unit-linked insurance plan (ULIP). In this article, we present 4 ULIP ‘sales pitches’ that insurance advisors are most likely to use and investors must beware of.
1. Premium has to be paid only for the first 3 years
Often insurance advisors pitch ULIPs claiming that premium payments need to be made only for the first 3 years. The policy will be in force even if premium payments are discontinued thereafter. That’s only part of the picture. The other relevant bit is that, though the policy will continue to be in force, mortality charges will be deducted from the ULIP’s corpus in the future as well.
Put simply, the insurance company will continue to make necessary deductions from the policy’s total accumulated money. Hence, the accumulated amount will continue to erode with each unpaid premium. Only the balance amount (net of mortality charges) will continue to be invested in the markets. Furthermore, when the ULIP’s corpus is insufficient to service the mortality charges, the policy will cease, thereby depriving the investor of an insurance cover.
2. New ULIPs make cheaper buys
Mutual fund distributors have been known to mis-sell new fund offers (NFOs), i.e., new mutual fund schemes by using the Rs 10 net asset value (NAV) pitch. Investors are convinced that buying into an NFO makes a cheaper buy on account of the lower (Rs 10) NAV. Investors tend to draw parallels between stock investing and mutual fund investing and fall for the bait. In fact, this is one of the most common fallacies in the mutual funds segment.
Now insurance advisors have ‘borrowed’ the same sales pitch from mutual fund distributors for selling new ULIP offerings. Investors are conned into believing that buying into new ULIPs (which are market-linked investments like mutual funds) translates into a cost-effective purchase.
Sponsored link for this article is Birla Sun Life Insurance
And by
3. ULIP investors are provided with dedicated fund managers
Like mutual funds, ULIP monies are also managed by fund managers. Fund managers are responsible for making investment decisions for the entire ULIP corpus i.e. for the monies invested by all unit holders in the given ULIP.
However, insurance advisors often claim that ULIP investments will be managed by dedicated fund managers. In other words, ULIPs are likened with investments under a Portfolio Management Service (PMS). In the latter, the investor has access to a dedicated fund manager who manages the portfolio in line with the mandate provided by the investor.
4. ULIPs offer guaranteed returns
ULIPs are market-linked investment avenues and are susceptible to the same risks that any market-linked investment avenue would. Broadly speaking, a downturn in equity and debt markets would adversely affect the performance of an ULIP. Of course, the fund manager’s skill sets, the ULIP’s portfolio structure and the investments will play a part in determining how it eventually fares.
Thanks to the upsurge in equity markets over the last few years, insurance advisors have begun pitching ULIPs as products offering guaranteed returns. Nothing could be farther from the truth. Investors should be wary of such fraudulent claims.
1. Premium has to be paid only for the first 3 years
Often insurance advisors pitch ULIPs claiming that premium payments need to be made only for the first 3 years. The policy will be in force even if premium payments are discontinued thereafter. That’s only part of the picture. The other relevant bit is that, though the policy will continue to be in force, mortality charges will be deducted from the ULIP’s corpus in the future as well.
Put simply, the insurance company will continue to make necessary deductions from the policy’s total accumulated money. Hence, the accumulated amount will continue to erode with each unpaid premium. Only the balance amount (net of mortality charges) will continue to be invested in the markets. Furthermore, when the ULIP’s corpus is insufficient to service the mortality charges, the policy will cease, thereby depriving the investor of an insurance cover.
2. New ULIPs make cheaper buys
Mutual fund distributors have been known to mis-sell new fund offers (NFOs), i.e., new mutual fund schemes by using the Rs 10 net asset value (NAV) pitch. Investors are convinced that buying into an NFO makes a cheaper buy on account of the lower (Rs 10) NAV. Investors tend to draw parallels between stock investing and mutual fund investing and fall for the bait. In fact, this is one of the most common fallacies in the mutual funds segment.
Now insurance advisors have ‘borrowed’ the same sales pitch from mutual fund distributors for selling new ULIP offerings. Investors are conned into believing that buying into new ULIPs (which are market-linked investments like mutual funds) translates into a cost-effective purchase.
Sponsored link for this article is Birla Sun Life Insurance
And by
3. ULIP investors are provided with dedicated fund managers
Like mutual funds, ULIP monies are also managed by fund managers. Fund managers are responsible for making investment decisions for the entire ULIP corpus i.e. for the monies invested by all unit holders in the given ULIP.
However, insurance advisors often claim that ULIP investments will be managed by dedicated fund managers. In other words, ULIPs are likened with investments under a Portfolio Management Service (PMS). In the latter, the investor has access to a dedicated fund manager who manages the portfolio in line with the mandate provided by the investor.
4. ULIPs offer guaranteed returns
ULIPs are market-linked investment avenues and are susceptible to the same risks that any market-linked investment avenue would. Broadly speaking, a downturn in equity and debt markets would adversely affect the performance of an ULIP. Of course, the fund manager’s skill sets, the ULIP’s portfolio structure and the investments will play a part in determining how it eventually fares.
Thanks to the upsurge in equity markets over the last few years, insurance advisors have begun pitching ULIPs as products offering guaranteed returns. Nothing could be farther from the truth. Investors should be wary of such fraudulent claims.
Monday, June 4, 2007
4 Steps for selecting the right ULIP
For a versatile profuct that is capable of adding significant value to investor's portfolios, unit-linked insurance plans(ULIPs) seem to have far too many critics. We have interacted with a number of investors who were very disillusioned with their ULIPs investments; often the disappointment stemmed from poor and inappropriate selection. We present a 4 step investment strategy that will guide investors in the selection provess and enable them to choose the right ULIP.
1. Understand what ULIP are all about:Do as much home work as possible bewfore investing in an ULIP. This way you will be aware if what you are getting into and make an informed decision. More importantly it will ensure that you are not faced with unpleasant surprises at a later stage. Fortunately for investors, the regulator has issued guidelines(on areas like sum assured and tenure), which have simplified the new breed of ULIP to a large extent.
Our experience suggests that investors on most occasions fail to realise what they are getting into and insurance agent/advisor's should get a lot of credit for the same . So you must gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on financial websites, 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 and needs should be the deciding criteria while choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is more suitable. On the other hand, if you are a low-risk investors, find you if the ULIP offers a minimum guarantee and the costs associated with the same.
Likewise, you existing investment portfolio and the equity-debt allocation therein also need to be give due importance before selecting a plan. Opting for 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.
Sponsored link for this article is Shriram Life Insurance
3. Compare ULIP product form various insurance companies:Compare product offered by various insurance companies on parameters like expenses, premium payments and performance among others. Make it a point to compare the ULIPs performance vis-a-vis comparable ULIP options from other insurers. Study the portfolios of various ULIPs across companies. expenses are a significant factor in ULIPs(Since they impact returns), hence an assessment on this parameter is warranted as well.
Wnquire 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 policy holders to increase the premium amounts, thereby providing an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches from one investment plan to another. Some insurance companies for instance, offer multiple free switch every year.
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. 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 insurance 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 form and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis.
1. Understand what ULIP are all about:Do as much home work as possible bewfore investing in an ULIP. This way you will be aware if what you are getting into and make an informed decision. More importantly it will ensure that you are not faced with unpleasant surprises at a later stage. Fortunately for investors, the regulator has issued guidelines(on areas like sum assured and tenure), which have simplified the new breed of ULIP to a large extent.
Our experience suggests that investors on most occasions fail to realise what they are getting into and insurance agent/advisor's should get a lot of credit for the same . So you must gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on financial websites, 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 and needs should be the deciding criteria while choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is more suitable. On the other hand, if you are a low-risk investors, find you if the ULIP offers a minimum guarantee and the costs associated with the same.
Likewise, you existing investment portfolio and the equity-debt allocation therein also need to be give due importance before selecting a plan. Opting for 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.
Sponsored link for this article is Shriram Life Insurance
3. Compare ULIP product form various insurance companies:Compare product offered by various insurance companies on parameters like expenses, premium payments and performance among others. Make it a point to compare the ULIPs performance vis-a-vis comparable ULIP options from other insurers. Study the portfolios of various ULIPs across companies. expenses are a significant factor in ULIPs(Since they impact returns), hence an assessment on this parameter is warranted as well.
Wnquire 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 policy holders to increase the premium amounts, thereby providing an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches from one investment plan to another. Some insurance companies for instance, offer multiple free switch every year.
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. 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 insurance 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 form and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis.
Subscribe to:
Posts (Atom)
Posts
