February 15, 2010 by akhilendra
Unit Linked Insurance Products
Unit Linked Insurance Products or ULIP are the hottest selling insurance products. They contribute around 80 percent of the total new business premium collection of the insurance companies’ collection. Their biggest USP is that they provide insurance cover and investment benefits. These are market linked products where premium amount is investment in money market and other investment instruments based upon the fund allocation given by the investors. The investment amount is use to purchase units and unit is represented by the value that it has achieved known as net asset value. The policy value is derived from the total nav of all units.
The return in a ULIP depend upon the performance if the funds. There are various kinds of funds offered by the insurance companies like equity fund, growth fund, debt fund etc. In these policies risk is borne by policy holder. They are different from traditional ‘with Profit’ policies. ‘With profits’ policies are called so because investment gains are distributed to policyholders in the form of a bonus announced every year. ULIPS are long term saving plan and there aim is to create wealth over a long time. But everything is not so good; there are various kinds of charges which insurer imposes on these policies. Charges like fund management charges, policy admin charges, mortality charges are few example of them. These are probably the most complex insurance products available in the market.
The general perception about these policies is that entire premium amount is invested but this is not true. Unit linked policies are often mis-sold. The information level about these products is very low. Clients don’t get complete information about products and they end up investing in wrong instrument. Insurance companies pay huge percentage amount of premium amount as commission to the agent. Commission percentage goes up to as high as 50 percent. This leads to high mis-selling of these products. People often get them completely wrong and invest in them to fulfill their short term financial goals.
Unit linked products are market driven and their value fluctuate in accordance with the market. These are very expensive and insurance companies deduct lot of charges from the premium. They take around 8-10 years to become profitable for the investors. They are very good tool for long term goals like 20-25 years. They can be used for other purposes also like partial withdrawal or loan.
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