LIFE INSURANCE- ULIPS

Presented By:
Aarushi Suri
Mehak Gupta
Rahul Mehta
Rahul Gupta
Rishebh Clement
MBA:INSURANCE AND FINANCIAL PLANNING
Ist Semester
Insurance
Insurance is pooling of risks.
In a contract of insurance, the insurer undertakes, in consideration of a sum of money
(premium), to make good the loss suffered by the insured against a specified risks such as fire
and any other similar contingency of compensate the insured on the happening of a specified
event such as accident or death.

The business of insurance is related to the protection of the economic values of assets.
Insurance
1. Fire Insurance
2. Marine Insurance
3. Accident/Motor Insurance
4. Health Insurance
5. Liability Insurance
1. Individual Insurance
2. Group Insurance

Types of Insurance

1. With Profits
2. Without Profits
General
Insurance
Life Insurance
Life Insurance Polices

Annuities
Policy
Whole Life
Policy
Endowment
Policy
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Provides Life Insurance protection over one's lifetime. Under
these policies, the payment of the assured sum is a certainty in
contrast to the term insurance contracts. Only the time of payment
of the assured sum is an uncertainty. These can be either
participating type or non-participating type.
Term
Policy
Term Policy and whole life insurance
policies focus on risk-coverage
Endowment policy and annuities
insurance policies focus on
investments
ULIPs focus on both risk-coverage and
the investments
ULIP
WHAT IS ULIP?
What is ULIP ?
A category of financial solutions that combine the
safety of insurance protection with wealth
creation opportunities
U: Unit
L : Linked
I : Insurance
P : Plan
Premium for ULIP
Investment as Unit
Life Coverage
ULIPs are Unit Linked Insurance Plans. Also addressed as
wealth insurance plans.
It is a package of financial solutions that ensure returns
on your investment.
They are innovative forms of life insurance that provide
safety of your insurance cover with wealth enhancement
opportunities.
ULIPs also provide good cover against death.
They also serve as means for long term savings that gives
maximum benefits.
In ULIP, some part of your investment is reserved in life
protection cover and the rest is invested in funds like
stocks and bonds.
In simple terms, ULIP are a combination package of life
cover and investment.

UNI T FUND AND UNI T
WHAT IS A UNIT FUND?
THE ALLOCATED (INVESTED) PORTIONS OF THE PREMIUMS AFTER DEDUCTING FOR ALL THE
CHARGES AND PREMIUM FOR RISK COVER UNDER ALL POLICIES IN A PARTICULAR FUND AS
CHOSEN BY THE POLICY HOLDERS ARE POOLED TOGETHER TO FORM A UNIT FUND.
WHAT IS A UNIT?
IT IS A COMPONENT OF THE FUND IN A UNIT LINKED POLICY.
HISTORY OF ULIP




.1963-formation of unit trust of India

.1971-ULIP was first launched in the market to give
saving benefits to customers


.Scheme plan: 2 plans
10 years
15 years
PREMIUM PAYABLE
. Half yearly
. Yearly
. LIC was the sole authority
ULIP CAME INTO PLAY IN 1960 AND IS POPULAR IN MANY COUNTRIES IN THE
WORLD TODAY.

IN 1971 THE UNIT TRUST OF INDIA OFFERED THE UNIT LINKED INSURANCE
PLAN. OUT OF INSURANCE PREMIUM A SMALL PART OF CONTRIBUTION WAS
UTILIZED FOR PROVIDING LIFE COVER AND BALANCE INVESTED IN UNITS.

UNIT LINKED GUIDELINES NOTIFIED BY IRDA ON 21
ST
DECEMBER, 2005 IN
INDIA. THE MAIN INTENT OF THE GUIDELINES WAS TO ENSURE THAT THEY LEAD
TO GREATER TRANSPARENCY AND UNDERSTANDING OF THESE PRODUCTS
AMONG THE INSURED, ESPECIALLY SINCE THE INVESTMENT RISK IS BORNE BY
THE POLICYHOLDER.

HISTORY
FEATURES OF ULI P
MAIN FEATURES
LIFE PROTECTION
DISABILITY
CRITICAL ILLNESS
SURGERIES
DEATH DUE TO ACCIDENT

ADDITIONAL FEATURES
INVESTMENT AND SAVINGS
CAPITAL GAINS
MORTALITY CHARGES
FLEXIBILITY
ADJUSTABLE LIFE COVER
INVESTMENT OPTIONS
TRANSPARENCY
OPTIONS TO TAKE ADDITIONAL COVER AGAINST
LIQUIDITY
TAX PLANNING

Types of ULIPs
The different types of ULIP plans include the following:
- Retirement Plans
- Wealth Plans
- Child Education Plans
- Health Plans
Based on lifes priority, one can invest in any of the
above ULIPs accordingly.
Best ULIPs are the ones that give you appropriate life
cover, better fund option and a long period investment.
How To Select The Right ULIP?
ULIP plans are seldom understood by a common man. As a result,
they are the most miss sold service.

Before choosing a ULIP plan, read the guidelines for your
investments:
- Understand ULIPs : In market there are many ULIP schemes
available which makes it more difficult to choose. So do a complete
research on the company, their product, terms and conditions.
- Analyze Your Needs : Evaluate your risk and needs. Later choose a
plan that will take care of all your requirements.
- Online Research : When you do online research on your own, you
can easily extract database of multiple companies offering you ULIP
plans. Next, you can deeply study their product and also know
about user opinions through forum portals.
- Consult An Experienced Advisor : Before selecting any insurance
plan, make sure that you consult an expert insurance advisor who
has complete knowledge of this sector. However, make sure that
the person should not be broker of any insurance company. Also,
track his records of previous clients.
What is NAV ?

NAV
Net Asset Value is value of assets held by the insurance co after deducting various
charges and it is computed daily based on closing price of securities.

HOW IS UNIT VALUE CALCULATED?
A = Market /Fair Value of the relevant Plans Investment Plus Current Assets
Less Current Liabilities and Provisions.
B = Number of Units outstanding under the relevant Plan

NAV = A/ B

FOR EXAMPLE:
AN INVESTOR HAD INVESTED RS.10,000/- IN A UNIT LINKED PLAN AND THE NAV AT THE
TIME OF INVESTMENT WAS RS.10/- THEN THE NUMBER OF UNITS HELD BY THE
INVESTOR WILL BE:
= 10,000/10
=1000 UNITS

Associated Charges/Costs



Contribution related charges
Fund Management Charge
Transactional charges
Surrender Charge
Switching Charge
Mortality charge
Rider premium charge
Liquidity charges
Top premium allocation charges
ULIP Premium Break up
Guidelines 2010
In order to meet the emerging
needs of prospective insurance
policyholders, this circular specifies
certain elements which shall be
incorporated in all ULIPs which may
be offered for sale to the public
commencing from September 1,
2010.
1. The three year lock-in period will be increased to a period
of five years, including top-up premiums.

2. No residuary payments on policies which are lapsed /
surrendered / discontinued will be made.

3. All regular premium / limited premium ULIPs shall have
uniform / level paying premiums.

All limited premium unit linked insurance products, other than
single premium products, shall have premium paying term of at least
5 years.
The insurers shall distribute the overall charges, in ULIPs in an even
fashion during the lock-in period.
All unit linked products, other than pension and annuity products
shall provide a minimum mortality cover.
Minimum mortality cover should be as follows:


Minimum Sum assured for age at entry
of below 45 years
Minimum Sum assured for age at entry
of 45 years and above
Single Premium (SP) contracts: 125
percent of single premium. Regular
Premium (RP) including limited premium
paying (LPP) contracts: 10 times the
annualized premiums or (0.5 X T X
annualized premium) whichever is higher.
At no time the death benefit shall be less
than 105 percent of the total premiums
(including top-ups) paid.
Single Premium (SP) contracts: 110
percent of single premium Regular
Premium (RP) including limited premium
paying (LPP) contracts: 7 times the
annualized premiums or (0.25 X T X
annualized premium) whichever is
higher. At no time the death benefit
shall be less than 105 percent of the total
premiums (including top-ups) paid.
The minimum health cover per annum
should be as follows:
Minimum annual health
cover for age at entry of
below 45 Regular Premium
(RP) contracts: 5 times the
annualized premiums or Rs.
100,000 per annum
whichever is higher, At no
time the annual health
cover shall be less than 105
percent of the total
premiums paid.
years
Minimum annual health
cover for age at entry of
Regular Premium (RP)
contracts: 5times the
annualized premiums or
Rs. 75,000 per annum
whichever is higher. At
no time the annual health
cover shall be less than
105 percent of the total
premiums paid 45 years
and above
1. All top-up premiums made during the currency of the contract, except for
pension/annuity products, must have insurance cover treating them as
single premium.

2. All ULIP pension / annuity products shall offer a minimum guaranteed
return of 4.5 per cent per annum or as specified by IRDA

3. All insurers are directed to conform to these features so that they can
introduce the products with due approval from IRDA.


4. Caps on charges were fixed on Unit Linked contracts with a term of 10
years or less and for those with term above 10 years.


The discontinuance/lapsation/surrender behavior and with a view to
smoothen the cap on charges, the following limits are prescribed starting
from the 5th policy anniversary:
Annualized Premiums Paid Maximum reduction in yield
(Difference between Gross and
Net Yield (% pa))
5 4.00%
6 3.75%
7 3.50%
8 3.30%
9 3.15%
10 3.00%
11 & 12 2.75%
1. The net reduction in yield for policies with term less
than or equal to 10 years shall not be more than
3.00% at maturity.

2. For policies with term above 10 years, the net
reduction in yield at maturity shall not be more than
2.25%.

3. The maximum loan amount that can be sanctioned
under any ULIP policy shall not exceed 40% of the
net asset value.


AMENDMENTS I N 2013
Lock in for Five Years and Premium Payment Term :
Minimum lock-in period has been revised from the
current 3 years to 5 years and barring single premium
policies, the minimum payment term has also been
raised to 5 pay.
Increase in Minimum Sum Assured: The minimum sum
assured multiple has been increased to 10 times for
age at entry below 45 years and 7 times for age at
entry above 45 years. At no time can the sum assured
be less than 105 per cent of total premium paid
including top ups. All top ups also must have life
insurance cover built into them.

Net Reduction in Yield for Every Year from Year 5: This
new guideline stipulates the maximum net reduction in
yield every year from 5th year. It is primarily an
extension of the earlier stipulation of maximum net
reduction in yield of 3% for policy term up to 10 years
and 2.25% for policy term above 10 years.
Cap on Discontinuance Charge: IRDA has introduced a
cap on surrender charge, now termed as policy
discontinuance charge, basis the year of
discontinuance and annual premium. This allows life
insurers to charge only a small penalty on early
surrender of policy.

Modifications in Unit Linked Pension Products : Partial
withdrawals in Unit Linked Pension products will not be
allowed. On maturity, one third of the corpus could be
taken as lump sum and rest must be used for buying
annuities. This change will ensure a larger corpus is
collected and used for retirement planning and not for
other life stage needs. IRDA has also made it
mandatory that all unit linked pension products must
offer minimum guaranteed return which would be
specified by IRDA from time to time. Even spread of
charges during the lock-in period. The new guidelines
stipulate that the overall charges in ULIPs should be
spread evenly over the lock-in period of 5 years.

NEED FOR REGULATIONS
Curbing
wrong
advice
Distance
marketing
Drafting
Guidelines
Mis-selling
Providing risk coverage
How sale by unlicensed personnel can be curbed
By plugging legal loopholes the malpractices existing in this market can be curbed

Tightening of the regulatory
ambit
Legal mandate to initiate direct penal action against Corporate Agents etc.

Feedback from various stakeholders on the issues put forth.

The issues were then presented to and discussed with the members of the
Insurance
Advisory Committee as well as the members of the Board of the Authority.

UNIT LINKED INSURANCE PRODUCTS ARE COMPLEX IN NATURE.
IN ORDER TO ENSURE FAIR TREATMENT TO THE POLICYHOLDER,
IRDA HAS TAKEN SEVERAL INITIATIVES.

Insurers must provide Benefit Illustrations giving two scenarios of
interest at 6% and at 10%
The prospect is required to sign on the illustration also while signing
the proposal
Insurers must provide the prospect/policyholder all relevant
information about various charges for each policy year
The lock-in period has been increased from three years to five years to
reflect the long-term, protection function of the policy
All regular premium/ limited premium ULIPs shall have uniform/
level paying premiums
ANY ADDITIONAL PAYMENT SHALL BE TREATED AS SINGLE PREMIUM FOR
THE PURPOSE OF INSURANCE COVER CHARGES ON ULIPS SHOULD BE EVENLY
DISTRIBUTED DURING THE LOCK-IN PERIOD SO THAT THE EXPENSES ARE NOT
EXCESSIVELY FRONT-ENDED
ALL UNIT LINKED PRODUCTS, OTHER THAN PENSION AND ANNUITY
PRODUCTS SHOULD HAVE A MORTALITY OR HEALTH COVER
THE MINIMUM COVER TO BE OFFERED HAS BEEN SPECIFIED FOR THESE
SEGMENTS
A CAP ON CHARGES HAS BEEN IMPOSED FROM THE 5TH YEAR ONWARDS
TO SMOOTHEN THE CHARGE STRUCTURE FOR THE POLICYHOLDER
Discontinuance/ surrender
charges
A new regulation was notified to ensure that policyholders do not
get overcharged when they discontinue their policies. They include:
An insurer shall recover only the incurred acquisition costs and these
charges should not be excessive
I RDA can order refund of discontinuance charges if found excessive on
enquiry
Discontinuance charges are capped as a percentage of fund value and
premium and also as an absolute value
When discontinuing a policy, a policyholder shall be entitled to revive it
or withdraw from it without any risk cover
The Grace Period for different modes of premium payment are clearly
defined
ULI P BY LI FE I NSURANCE
COMPANI ES
Bajaj Allianz Life Insurance
Investment Plan - Future Gain

Features :

Maximum premium allocation
Choice of 2 investment portfolio strategies
Choice of seven (7) funds
Option to make partial withdrawals from the
funds
Option to pay top-up premium

Investment Plan - Fortune Gain

Features :

Option to make partial withdrawals from the funds
Option to pay top-up to the extent of the single
premium paid.
Option to decrease sum assured
Systematic switching option to manage your
investments better
Options to take maturity benefit in installments
(Settlement Option).
SBI Life Insurance
Smart Wealth Builder

Features :

No Premium Allocation Charge from 11th year
onwards
Enhanced investment opportunity through 7 varied
Fund Options
Life Insurance coverage, with minimum Sum Assured
based on your age
Flexible product with an option to increase/decrease
your Sum Assured from 6th policy year onwards
Smart Scholar

Features :

Dual protection for your family, in case you are not around
Payment of base Sum Assured and
Inbuilt Premium Pay or Waiver benefit to ensure continuance of
your policy
Depending upon the term of the policy, Loyalty Additions
would be paid periodically, for in-force policies.
Enhanced investment opportunity through 7 varied fund
options
Twin benefits of market linked return & insurance benefit
Liquidity through partial withdrawal(s)

HDFC Life Insurance
Smart Woman Plan

Features :

Classic Under this option you can avail of premium waiver
benefit with funding of next 3 years premiums.
Premier Under this option you can avail of premium waiver
benefit with funding of next 3 years premiums and periodic
cash payouts of 100% of next 3 years premiums.
Elite Under this option you can avail of premium waiver
benefit with funding of next 3 years premiums and periodic
cash payouts of 100% of next 3 years premiums along with
coverage for death of spouse.

Young Star Super Premium

Features :

Flexibility to choose from 4 funds to suit your risk
appetite:
Income Fund: Higher potential returns due to higher duration
and credit exposure.
Balanced Fund: Dynamic equity exposure to enhance the
returns while the debt allocation reduces the volatility.
Blue chip Fund: Investments in large cap equities.
Opportunities Fund: Investments in mid-cap equities.
Flexibility to select tenure of 10, 15 - 20 years
Flexibility to select the Sum Assured
AEGON Religare Life Insurance
Future Protect Plus Insurance Plan

Features :

In case of your death during Policy period, benefit to
nominee: Cover Amount (Base Sum Assured + Fund Value)
In case you survive the Policy period, you will receive a lump
sum payout (Fund Value existing on the maturity date)
Invest protect option
Auto rebalancing of funds
Liquidity through Partial Withdrawal

Rising Star Insurance

Features :

In case of your death during Policy period, benefits to nominee:
Higher of cover amount (Sum Assured) or 105% of all premiums paid
immediately.
All future premiums waived off and paid by the Company into the Policy
Fund Value, Policy continues.
Amount equal to the Annualized Premium will be paid every year to the
nominee.
On Maturity, lump sum i.e. Policy Fund Value will be paid.
In case you survive the Policy period, you will receive the Fund
Value existing on the Maturity date.
Auto rebalancing of funds.
Partial Withdrawal.
Tax benefits as per prevailing tax laws. Please consult your tax
advisor for details.