Source: The Economic Times.
With insurers going all out to get a larger share of investors’ savings, life companies are offering unit-linked insurance policies (Ulips) where 98-100% of policyholder’s contribution goes into investments. Life insurers are now selling Ulips as a channel for making investments in stock markets and are positioning Ulips as alternatives to mutual funds.
“When Ulips were introduced, they had a few takers. The schemes had low allocations and high charges. As the markets have matured and competition has crept in, it’s only natural that allocations have gone up and charges have gone down,” says Sam Ghosh, CEO Bajaj Allianz Life Insurance and country manager, Allianz Worldwide. Illustrating how well Ulips have been doing in the recent past, Anjana Grewal, senior vice-president marketing at Birla Sun Life Insurance, says, “Demands are always increasing and the main thing is that they are keeping pace with global trends, with Ulips performing well across the board.”
In a regular premium Ulip scheme, out of every Rs 100 contributed typically only Rs 75 would be invested in the first year, with the remaining going toward commissions and charges. The commissions come down dramatically in the second year, making it a good long-term option. Insurers have come up with special terms for large investments where commissions are very low and allocations are as high as 100%. Some experts also feel that the high commission is a reason why many agents are upbeat on promoting Ulips. However, in the case of a mutual fund, there is an asset management charge only, which is capped at 2.5% by Sebi.
Some of the life policies are as good as mutual fund schemes. For instance, ICICI Prudential has an option under Life Link Super, where an investor, who puts in a single premium of Rs 5 lakh, will get units worth Rs 4,96,840. In addition, he will get insurance cover worth Rs 25 lakh and all the tax benefits that are available to regular life insurance policies. If he opts to have a policy with a lower life cover of Rs 6,25,000, he will get units worth Rs 4,99,577. In a mutual fund, which levies an entry charge of 2.25%, the allocated units will be of Rs 4,88,750, without any life cover.
According to an SBI Life spokesperson, after Irda revised norms in July 2006, all insurance companies must have the same terminology for all charges. Some Ulips, with high administration charge, have lowered them to give the customer the benefit of higher market exposure. “Our premium allocation charges are very competitive compared to mutual funds if you consider average premium allocation charges for 10 or 20 years. Premium allocation charges should be assessed in the long term. For example, in the case of SBI Life’s product — Unit Plus II Regular — the average annual entry charges for a 20-year term taking into consideration the guaranteed addition benefit is 1% and it reduces for high premium,” the spokesperson said. For larger amounts, if the guaranteed additions were factored in, the charges work out to be negative, he added.
The popularity of Ulips may have helped in bringing down charges and raising allocations. “As markets grow and get more complex, players get more competitive and margins get squeezed, but then it’s something that has to be done,” says Mr Ghosh. However, some other companies aren’t that open to admitting that the popularity of Ulips have affected their strategies, while officials at Prudential ICICI and SBI Life say they haven’t brought about any changes in their fee structure. “We aligned our structure to suit the guidelines issued by Irda in June last year, and others have done the same,” explains Ms Grewal.
On the other hand, the growing popularity and affordability of Ulips seems to be giving other investment options like MFs a run for their money.
“MFs and Ulips essentially can’t be compared as Ulips are long term products with a typical commitment of 10 years or more, while mutual funds are medium-term products with a period of three years or so,” says Ms Grewal.
With insurers going all out to get a larger share of investors’ savings, life companies are offering unit-linked insurance policies (Ulips) where 98-100% of policyholder’s contribution goes into investments. Life insurers are now selling Ulips as a channel for making investments in stock markets and are positioning Ulips as alternatives to mutual funds.
“When Ulips were introduced, they had a few takers. The schemes had low allocations and high charges. As the markets have matured and competition has crept in, it’s only natural that allocations have gone up and charges have gone down,” says Sam Ghosh, CEO Bajaj Allianz Life Insurance and country manager, Allianz Worldwide. Illustrating how well Ulips have been doing in the recent past, Anjana Grewal, senior vice-president marketing at Birla Sun Life Insurance, says, “Demands are always increasing and the main thing is that they are keeping pace with global trends, with Ulips performing well across the board.”
In a regular premium Ulip scheme, out of every Rs 100 contributed typically only Rs 75 would be invested in the first year, with the remaining going toward commissions and charges. The commissions come down dramatically in the second year, making it a good long-term option. Insurers have come up with special terms for large investments where commissions are very low and allocations are as high as 100%. Some experts also feel that the high commission is a reason why many agents are upbeat on promoting Ulips. However, in the case of a mutual fund, there is an asset management charge only, which is capped at 2.5% by Sebi.
Some of the life policies are as good as mutual fund schemes. For instance, ICICI Prudential has an option under Life Link Super, where an investor, who puts in a single premium of Rs 5 lakh, will get units worth Rs 4,96,840. In addition, he will get insurance cover worth Rs 25 lakh and all the tax benefits that are available to regular life insurance policies. If he opts to have a policy with a lower life cover of Rs 6,25,000, he will get units worth Rs 4,99,577. In a mutual fund, which levies an entry charge of 2.25%, the allocated units will be of Rs 4,88,750, without any life cover.
According to an SBI Life spokesperson, after Irda revised norms in July 2006, all insurance companies must have the same terminology for all charges. Some Ulips, with high administration charge, have lowered them to give the customer the benefit of higher market exposure. “Our premium allocation charges are very competitive compared to mutual funds if you consider average premium allocation charges for 10 or 20 years. Premium allocation charges should be assessed in the long term. For example, in the case of SBI Life’s product — Unit Plus II Regular — the average annual entry charges for a 20-year term taking into consideration the guaranteed addition benefit is 1% and it reduces for high premium,” the spokesperson said. For larger amounts, if the guaranteed additions were factored in, the charges work out to be negative, he added.
The popularity of Ulips may have helped in bringing down charges and raising allocations. “As markets grow and get more complex, players get more competitive and margins get squeezed, but then it’s something that has to be done,” says Mr Ghosh. However, some other companies aren’t that open to admitting that the popularity of Ulips have affected their strategies, while officials at Prudential ICICI and SBI Life say they haven’t brought about any changes in their fee structure. “We aligned our structure to suit the guidelines issued by Irda in June last year, and others have done the same,” explains Ms Grewal.
On the other hand, the growing popularity and affordability of Ulips seems to be giving other investment options like MFs a run for their money.
“MFs and Ulips essentially can’t be compared as Ulips are long term products with a typical commitment of 10 years or more, while mutual funds are medium-term products with a period of three years or so,” says Ms Grewal.
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