New ULIP products launched in India

ULIP or unit linked investment plans are getting immanence popularity in these days. In India, the most important player in ULIP sector is LIC of India. Other private and public financial firms like SBI Life, ICICI prudential, IDBI Federal, Bajaj Alliaanze, Future Generali, HDFC Standard life and Reliance are also in the ULIP sector. Most of the ULIP plans to deposit the investment of the user in various funds and earn them good profit in long terms. As you might know, IRDA is the regulator for insurance policies in India. IRDA introduced several new rules in the ULIP sector, and they have already come into effect from September of 2010. Insurance is also a part of the ULIP products. Until September, the maximum amount of insurance for a person insured on ULIP based products was five times the annual premium. The insurance benefit, fund management charges and the policy lock-in period all have changed with the introduction of these rules.

Currently, ULIP plans contribute to around 60-90 percent of the annual premium collected by LIC, SBI Life, ICICI prudential, IDBI Federal, Bajaj Alliaanze, Future Generali, HDFC Standard life and Reliance life Insurance. It seems that people are getting interested in the investment plus  insurance campaign promoted by these companies. In general, in a ULIP policy, the money invested by the user is converted into units. Then the units are allocated on debt funds or stock/equity funds. Based on performance of the fund manager, the value of each unit goes up and the investor generates profit. The fund value of the investment is a few multiples of the annual premium. At policy maturity, either the fund value or FV plus the profit on investment – the higher amount will be given to the investor. The fund value will be paid in case of the death of the investor during the policy term.  ULIP plans also qualifies the investor for tax deduction as per the Government of India regulations.

Insurance companies usually impose several charges on the premium collected from the investor. It includes fund management charges, policy administration charges, agent charges and others. The charges are different for all ULIP providers, but it is in the range 10-20% for most of them, in the first few years. The actual portion of the investment converted into units  comes only after deducting these charges. Therefore, in most of the cases investor will not see any improvement in profit for the first few years. There is a three year lock-in period for continuous premium payment and then maturity time. Companies charge heavy amount on policies surrendered before its maturity.

The new IRDA rules come as a relief for the customers from the hefty charges and mis-selling  practices from the insurance providers. It was possible for the insurance companies to levy up-to 100% as the surrender charge on a lapsed or discontinued policy, until this September. Now there if a limit for the surrender charges, but the fund value will be paid only after the lock-in period, that is five years. Commission of the insurance agents has been reduced to 7-9%  from 15-18 % level. From this month onwards companies should provide a minimum  return on all ULIP investment plans. The minimum return is fixed as 4.5%  if the customer withdraws funds on the 5th year of the policy term. All these initiatives would improve the confidence of customers and lead to more investment. Companies in the other hand, are trying to cut various types of costs at the administration and operation levels to make ULIP products continue as a good business model.

New ULIP policies introduced after September 2010:

All ULIP companies redesigned their policy schemes to be under the IRDA rules 2010. Four new ULIP plans accepted by IRDA are SBI Life Smart performer, SBI Life – Unit Plus Super, Future Generali Select and LIC pension plus. HDFC Standard Life, Max New York Life Insurance, ICICI prudential, IDBI Federal, Bajaj Alliaanze,  and Reliance Life will also release new ULIP products in the coming days.