Shed
your aversion to Ulips
This
transformation of Ulips from a costly bundled product to a low-cost option has
led to a change of heart among financial planners as well. For long, they have
advised clients to keep insurance and financial investment planning in Delhi separate. Says S Sridharan,
head of financial planning, FundsIndia. com. "Low-cost products like this
will be suitable for investors who want to combine insurance with
investments," he adds.
He's
not alone. With more low-cost Ulips on the anvil (at least two companies are
awaiting Irda's approval for their low-cost Ulips), many financial planners are
changing their tune. "The Click2Invest plan from HDFC Life is a good
product. We are recommending it to our clients," says Jaya Nagarmat from
Investor Shoppe. Tanvir Alam, founder & CEO of Fincart goes a step further.
"This Ulip will give the mutual fund industry a run for its money,"
he says.
Indeed,
it is time to get rid of the historical aversion to Ulips and look at them through
the prism of lower charges. This will not be easy because a lot of investors
have been scarred by their experience with Ulips. Many have lost ously, the
mortality charges are higher when it comes to such plans.
Though
Ulips offer a cover to policyholders, the benefit may be a drag for those who
are interested purely in investment. The low-cost Ulips are, therefore, Type I
plans that will pay either the fund value or the sum assured. Here's how it
will work. Suppose a person buys a Ulip with a Rs 1 lakh premium for 20 years.
The plan will give him a cover of Rs 10 lakh (10 times the annual premium), but
the insurance company will charge mortality premium for only Rs 9 lakh since
the total risk for the company is Rs 9 lakh. With every annual payment of the
premium, the risk of the company will come down, reducing the mortality charge.
When the fund value of the Ulip exceeds the sum assured, the plan will stop
deducting mortality charges and the entire premium will go into investment.
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