Time to swap your unit-linked insurance plans - ULIPs for safer bets?

Time to swap your unit-linked insurance plans - ULIPs for safer bets? The good news is investors can make 5 to 6 switches during a year among funds depending on the insurance companies without incurring any costs. The rise in the equity markets hasn't benefited mutual fund houses alone. Even insurance companies have seen steady inflows into their unit-linked insurance plans (ULIPs).  According to the industry estimates, ULIPs have seen flows of around Rs. 19,000 crore (including new business premium and renewal premium) up to August 2017 against Rs. 15,000 crore in the previous financial year -- a year-on-year rise of around 27%.  ULIPs are insurance-cum-investment products. They provide risk cover along with investment options in instruments such as stocks or bonds. Given that these are neither pure investment (such as mutual funds) nor pure insurance (such as term plans) products, most financial planners do not advise you to invest in ULIPs. But when stock markets start rising, many policyholder buy these hybrid products to take advantage of market conditions. However, with market experts beginning to worry about sustainability of this rally for too long, ULIP investors also may have to start looking at making changes in their portfolio preferences. "A major advantage of ULIPs is that one can switch from equity to debt or vice versa depending on their risk appetite," said Mr. Manoj Kumar Jain, managing director at Shriram Life. The good news is that all ULIP holders can make several switches without incurring any cost during the year. And the best part: There is no tax liability on inter-fund transfers. ULIPs give equity, balanced and debt options to the investor. The decision of fund switching in ULIPs would depend on tenure of the policy and a customer's risk appetite. If the policy is due to mature in the near term, and the customer wants to minimise volatility, she / he may opt to switch from equity to debt at this point of time," said Mr.R M Vishakha, MD and CEO, IndiaFirst Life Insurance. Even ULIPs, as a product, does not make much sense for the short-term policyholder because it means that one has to bear high costs in the initial years. Typically, ULIPs have several charges such as premium allocation charges, fund management charge, policy administration charges, and mortality charges, among other. The sum total of all these charges could be as high as 6 to 7% a year in the first 5 years

December 02, 2017