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
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