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The Never Ending ULIP Saga and Things That Make ULIPs a Good Investment Option

HDFC Life | 26 Jun, 2013  | Follow Author | Add to my Favourites 
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There was a time when every man and his mother-in-law wanted to invest in ULIPs. Such was the craze for this brand new concept in insurance that people literally queued up to buy policies. Insurance agents were a happy lot doling out ULIPs by the dozens.
And then the heavens broke loose and things started to turn sour. Agents and insurance providers were blamed for misselling and misguiding the lay investor. The policy allocation charges (PAC) proved to be ULIPs nemesis with investors complaining that a good chunk of their investment went into paying PAC charges that offered zero value to their investments in the short term. There were further allegations that insurance providers and agents acted hand-in-glove to further their own interests by offering ULIPs over traditional insurance policies for hefty commissions.

It’s still not clear what had actually gone wrong. ULIP traditionally per se is not a bad product idea. Agreed, some agents in their zeal to push more policies might have chosen to not be too upfront about the fact that ULIPs are better in the long term. Those with a short investment timeframe might not find it a worthy investment option given the application of PAC charges.

And that’s when the IRDA decided to intervene in late 2010 and set the house in order. Things changed drastically. There were a fresh set of rules governing the promotion and sale of ULIPs. Those on the business side of ULIPs were required to be more transparent and upfront about the product features. There was considerable emphasis on product education and awareness.

The result is for everyone to see. The reincarnated ULIP is now a much better product. The mandate for the minimum sum assured on any ULIP policy is 10 times the annual premium payable. And we now hear more people talking about the long term benefits of ULIPs which is what the product was originally designed for.

And here are three good reasons why ULIPs are a worthwhile investment option in their present avatar.

- ULIPs Can Be Very Effective in the Long Run
As has been mentioned earlier, ULIPs were always meant for those who have a long term investment horizon. It’s definitely not for those who are looking to capitalize on short term gains right at the end of the lock-in period. ULIPs use the power of equity to build investor wealth but you need to give the product sufficient time to make the most of the invested capital. Staying invested for long term thus becomes the best strategy to get the best out of your investments even to the tune of the conservative estimates provided by insurance providers.

- A Better and More Transparent Product Offering
ULIPs today are a much better product compared to its earlier avatar offering customers greater protection. One of the most notable changes is the increase in lock-period that has been extended from three years to five years – once again reiterating the fact that it’s a long term investment avenue.   There’s also an upper limit on surrender charges as well as commissions paid to agents bringing in a great deal of transparency. Also, contrary to the earlier version, a larger chunk of the paid premium is allocated to investments versus the amount that is allocated for policy administration. This would ensure that should investors plan an early exit, the returns would be higher compared to older ULIPs.

- Investments on Autopilot
This bodes well for those who are less investment savvy. Just like a mutual fund where fund managers use the invested capital to invest in the best equity or debt instruments, ULIPs go one step ahead by offering investors not only the capability of having their capital invested in noteworthy funds but they also provide the benefit of insurance. The only thing investors need to ensure is to stay for the long term and choose the ULIPs wisely.

A Word of Caution
While there are plenty of ULIP plans to choose from, you need to still exercise a lot of caution before you zero in on the policy of your choice. The first thing to do is to short list policies that best suit your investment goals and objectives. You also need to make sure you pick ULIPs that offer a whole load of flexibility in terms of paying premiums, payment frequency, switching funds, etc. You should also see to it that you carefully review the various charges payable and what would be the indicative returns at specific intervals or stages of your investment.

This post is submitted by Surabhee Gupta, Senior Marketing Manager, HDFC Life.

Surabhee Gupta is an MBA graduate from Symbiosis Pune. She has spent last 6 years in online Insurance sector. She is currently associated with HDFC Life overlooking their marketing portfolio.

About HDFC Life

HDFC Life, one of India's leading private life insurance companies promoted by HDFC Ltd. & Standard Life Ltd., offers a range of individual and group insurance solutions. HDFC Life's product portfolio comprises solutions, which meet various customer needs such as Protection, Pension, Savings, Investment and Health.

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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