Life Insurance Policies

Term W h o lelife E n d o w men t A n n u it y U L IP s

Importance of Life Insurance

F u ll p r o te c tio n E n c o u ra g e a n d E a s y s e ttle m e n c r e d ito r s R e a d y m a rk e ta q u ic k b o r r o w in D is a b ility b e n e A c c id e n ta l d e a T a x r e lie f a g a in s t r is k o f d e a th fo r c e s th r ift t & p r o te c tio n a g a in s t b ility & s u s ta in a b ility fo r g s fit th b e n e fit
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Few important terms

- S A - T e rm - P r e m iu m

(level premium, limited premium payment, single or multiple, mortality & morb idity, w ith prof it or w ith out prof it)

M o d e o f p a y m e n t P r e m iu m p a y in g p e r io d C l a i m (Survival benefit on maturity or death) A s s ig n m e n t N o m in a tio n S u r r e n d e r v a lu e

Term life insurance

L ow C overs p ure ris k s only c os t Sp ec ified p eriod of time W O P only

N o s urvival benefit, only death benefits N o loan or s urrender

N o element of s aving s or inves tment

F orfeiture of p remium in c as e the p olic yholder outlives the p olic y term W ho p refers it?
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Term life insurance - Ty p es

Pure Term Insurance Plan: Premi um B ack Term Plan: C o nv ert i b le Term Plan: M
C o v e r s o n ly life r is k , n o m a tu r ity b e n e fit In a d d itio n to life c o v e r , it o ffe r s r e tu r n o f a c tu a l p r e m iu m (o n m a tu r ity d a te ) p a id

C a n b e c o n v e r te d in to E n d o w m e n t, a fte r th e e x p ir y o f s e le c te d p e r io d D e c r e a s in g T e m p o r a r y A s s u r a n c e P o lic y , ta k e s c a r e o f o u ts ta n d in g in d e b te d n e s s u n d e r a h o u s in g lo a n
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o rt g ag e R ed emp t i o n A ssurance:

W h o le life p o licy
I ns uranc e c over ag ains t death, irres p ec tive of w hen it hap p ens P ermanent ris k p rotec tion at a moderate c os t P olic yholder p ays reg ular p remium until his death, follow ing w hic h the Sum A s s ured is p ayable to the nominee N ot a very p op ular p lan, as it does not s uit the req uirements of p os t-retirement life

A s a res ult of this draw bac k , ins uranc e firms now offer either a modified W hole L ife P olic y or in c ombination w ith another typ e of p olic y

h o p r e fe r s it?

W h o le life p o licy

S o m e o f th e m o d ifie d v e r s io n s o f w h o le life p la n s : Single Premium WL Policy: O n e t i m e p a y m e n t o f p r e m iu m , r e d u c e s th e o ld a g e p r e m iu m p a y m e n t w o r r ie s C onv ert ib le WL Policy: C a n b e c o n v e r t e d i n t o E n d o w m e n t p la n , a fte r th e e x p ir y o f 5 y e a r s s in c e in c e p tio n Limit ed Pa yment WL Policy: P r e m i u m c e a s in g a t th e a g e o f 7 0

p a y m e n t

E nd o w ment P lans

P ure endow ment M oderate P remiums (higher than Term Plans) H ig h bonus H ig h liq uidity Saving s oriented: C ombines ris k c over w ith financ ial s aving s Survival benefit D eath benefit

T y pes of E nd ow ment pol icy

O r d in a r y E n d o w m e n t P o lic y Combination of Protection & Investment Jo in t L ife E n d o w m e n t P o lic y In case of p artnersh ip firm D o u b le E n d o w m e n t P o lic y Investment el ement is h ig h er
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A nnuit y P lans

L i f e an n u i t y i s o p p o s i t e o f i n s u r an c e p r o t e c t i o n ag ai n s t d e at h It c o v e r s th e r is k o f liv in g to o lo n g

L i f e an n u i t y i s d e f i n e d as a c o n t r ac t w h e r e b y f o r a c as h c o n s i d e r at i o n , t h e i n s u r e r ag r e e s t o p ay t h e an n u i t an t a s t i p u l at e d s u m p e r i o d i c al l y t h r o u g h o u t life

I n c as e p ay m e n t i s l i n k e d t o l i f e c o n t i n g e n c i e s , i t i s a L ife A n n u ity

A n n u i t y i s a p e r i o d i c r e p ay m e n t d u r i n g a f i x e d p e r io d o r fo r life

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O n e liq u id a t e s g r a d u a lly a n d o t h e r a c c u m u la te s g r a d u a lly

Difference between Annuity & life Insurance

O n e is t a k e n f o r o w n b e n e f it a n d o t h e r is t a k e n fo r b e n e fit o f d e p e n d e n ts . G e n e r a lly p a y m e n t s t o p s a t d e a t h w h ile in o th e r p a y m e n t is m a d e a t th e tim e o f d e a th . O n e is p r o t e c t io n a g a in s t liv in g t o o s h o r t a n d o th e r liv in g to o lo n g .

A nnu ity P l ans -C l assif ic ation

Immed i at e annui t y Immed i at e annui t y cert ai n
A lw a y s b o u g h t w ith S in g le P r e m iu m P a y m e n t o f a n n u ity s ta r ts im m e d ia te ly

A n n u ity is p a id fo r a s p e c ifie d c e r ta in p e r io d a n d th e r e a fte r fo r life

D ef erred annui t y

In c a s e o f d e a th o f th e a n n u ita n t w ith in th e s p e c ifie d c e r ta in p e r io d , th e r e m a in d e r o f g u a r a n te e d a n n u itie s a r e p a y a b le to th e b e n e fic ia r y

P a y m e n t o f a n n u ity s ta r ts a fte r c o m p le tio n o f th e p o lic y te r m P r e m iu m m a y b e S in g le o r a p e r io d ic p a y m e n t d u r in g th e d e fe r m e n t p e r io d

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U L IP s
A

u n it lin k e d in s u r a n c e p o lic y p r o v id e s a in s u r a n c e c o v e r a n d th e p r e m iu m p a id is in v e s te d in e ith e r d e b t o r e q u ity p r o d u c ts a c o m b in a tio n o f th e tw o . In o th e r w o r d s , it is a c o m b in a tio n o f in s u r a n c e + m u tu a l fu n d . I n t h e e v e n t o f t h e l i f e a s s u r e d 's u n t i m e l y d e a th , h is n o m in e e r e c e iv e s th e s u m a s s u r p lu s th e v a lu e o f th e u n its (in v e s tm e n ts ). E v e r y in s u r a n c e c o m p a n y h a s U L IP p r o d u w ith v a r y in g in v e s tm e n t o p tio n s , c h a r g e s a n d c o n d itio n s fo r w ith d r a w a ls a n d s u rre n d e r.

life o r

e d c ts
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A s is U L IP a n d a s a m e S im in v o n e d iv fu n

U n it L in k e d In s u r a n c e P la n s (U L IP s ) a s a n in v e s tm e n t a v e n u e a r e c lo s e s t to m u tu a l fu n d s in te r m s o f th e ir s tr u c tu r e a n d fu n c tio n in g . th e c a s e w ith m s a r e a llo tte d u n n e t a s s e t v a lu e o n a d a ily b a s is L IP in c ro s s v in th e e q u ity m e a f v e a r m fu e w

G e n e r a lly s p e a k in g , U L IP s c a n b e te r m e d a s m u tu a l fu n d s c h e m e s w ith a n in s u r a n c e c o m p o n e n t.

ila r ly U e s tin g a s fo u n d e r s ifie d d s to n a

s to rs h a io u s s c h u tu a l fu n d s , b a .

u tu a l fu n d s , in v e s to r s in its b y th e in s u r a n c e c o m p a n y (N A V ) is d e c la r e d fo r th e . v e e m n d la n th e e s s d c e d o p s im o m fu tio ila a in n d n o f r to th e , i.e . s a n d d e b t

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How does ULIP work?

T t s M t d o h e p r e m i u m p ai d b y t h e c l i e n t , l e s s an y c h ar g e s o b e d e d u c te d , is u s e d to b u y u n its in th e fu n d e l e c t e d b y t h e c l i e n t at t h at d ay ' s u n i t p r i c e . o r e u n i t s ar e ad d e d t o t h e c l i e n t ' s ac c o u n t e ac h i m e h e p ay s a p r e m i u m . I f t h e u n i t p r i c e o n t h at ay i s r e l at i v e l y h i g h t h e c l i e n t g e t s l e s s n u m b e r f u n i t s an d i f t h e u n i t p r i c e i s r e l at i v e l y l o w t h e n h e g e ts m o r e n u m b e r o f u n its . T h e v al u e o f t h e f u n d d e p e n d s o n t h e u n i t p r i c e , w h i c h i n t u r n i s d e t e r m i n e d f r o m t h e m ar k e t v al u e o f t h e u n d e r l y i n g as s e t s . T h u s , Fund Value = Unit Price x Number of Units
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B en ef i t s of ULIP
U L I P i s l i f e i n s u r an c e s o l u t i o n t h t h e b e n e f i t s o f p r o t e c t i o n an d in v e s tm e n t. I n t o d ay ' s t i m e s , U L I P p r o v i d e i n s u r an c e p l an n i n g , f i n an c i al n p l an n i n g f o r c h i l d r e n ' s f u t u r e p l an n i n g . I n v e s t m e n t s i n U L I P ar e al s o s u t ax b e n e f i t s u n d e r S e c 8 0 C an d 1 0 at p r o v i d e s f o r fle x ib ility in s o lu tio n s fo r e e d s , f i n an c i al an d r e t i r e m e n t b je c t t o (1 0 D ) in c o m e s

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F ea t u res of ULIP
I nv es t ment a nd s a v ings O p t ions t o t a k e a d d it iona l rid ers A d j us t a b le Lif e cov er Lif e Prot ect ion

F lex ib ilit y

T ra ns p a rency T a x Pla nning

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F u n ds u n der ULIP
E a c h in s u r a n c e c o m p a n y o ffe r s a t le a s t 4 to 5 fu n d o p tio n s . It c a n v a ry fro m E x a m p le s :
B ond F und

a c r o s s d iffe r e n t in s u r e r s .

L iq uid/ C as h F und

M idc ap F und
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E q uity F und

B alanc ed F und

C h a rg es u n der ULIP
S a le s a n d a d m in is tr a tio n e x p e n s e s M o r ta lity C h a r g e s

T o p -u p C h a r g e s

S w itc h in g C h a r g e s

F u n d m a n a g e m e n t c h a rg e s (F M C )

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C h a rg es u n der ULIP
M o r ta lity C h a r g e s M o r ta lity e x p e n s e s a r e c h a r g e d b y life in s u r a n c e c o m p a n ie s fo r p r o v id in g a life c o v e r to th e in d iv id u a l. T h e e x p e n s e s v a r y w ith th e a g e , s u m a s s u r e d a n d s u m -a t -r i s k f o r t h e i n d i v i d u a l . I n a U L I P , t h e s u m -a t -r i s k i s a n i m p o r t a n t r e fe r e n c e p o in t fo r th e in s u r a n c e c o m p a n y . P u t s i m p l y , t h e s u m -a t -r i s k i s t h e d i f f e r e n c e b e tw e e n th e s u m a s s u re d a n d th e in v e s tm e n t v a lu e o f th e in d iv id u a ls c o r p u s a s o n a s p e c ifie d d a te .

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C h a rg es u n der ULIP
S a le s a n d a d m in is tr a tio n e x p e n s e s
I ns uranc e c omp anies inc ur thes e ex p ens es for op erational p urp os es on a reg ular bas is .

T he ex p ens es are rec overed from the p remiums that individuals p ay tow ards their ins uranc e p olic ies . A g ent c ommis s ions , s ales and mark eting ex p ens es and the overhead c os ts inc urred to run the ins uranc e bus ines s on a day-to-day bas is are ex amp les of s uc h ex p ens es .

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C h a rg es u n der ULIP
F u n d m a n a g e m e n t c h a rg e s
T hes e c harg es are levied by the ins uranc e c omp any to meet the ex p ens es inc urred on manag ing the U L I P inves tments . A p ortion of U L I P p remiums are inves ted in eq uities , bonds , g -s ec s and money mark et ins truments .

M anag ing thes e inves tments inc urs a fund manag ement c harg e, s imilar to w hat mutual funds inc ur on their inves tments . F M C s differ ac ros s inves tment op tions lik e ag g res s ive, balanc ed and debt U L I P s ; us ually a hig her eq uity op tion trans lates into hig her F M C .

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C h a rg es u n der ULIP
S w itc h in g C h a r g e s
I ndividuals are allow ed to s w itc h their U L I P op tions . F or ex amp le, an individual c an s w itc h his fund money from eq uities to a balanc ed p ortfolio, w hic h has s ay, 6 0 % eq uities and 4 0 % debt.

H ow ever, the c omp any may c harg e him a fee for s w itc hing . W hile mos t life ins uranc e c omp anies allow a c ertain number of free s w itc hes annually, a s w itc h made over and above this number is c harg ed. E x amp le: L I C allow s 4 free s w itc hovers ag ains t s ome of its U L I P p roduc ts and c harg es R s . 1 0 0 p er every additional s w itc hover in a year. 23

C h a rg es u n der ULIP
T o p -u p C h a r g e s
U L IP s a llo w a m o u n t. i n d i v i d u a l s t o i n v e s t a t o p -u p

T o p -u p a m o u n t i s p a i d i n a d d i t i o n t o t h e p r e m iu m a m o u n t fo r a p a r tic u la r y e a r . In s u r a n c e c o m p a n ie s d e d u c t a c e r ta in p e r c e n t a g e f r o m t h e t o p -u p a m o u n t a s c h a rg e s .

T h e s e c h a r g e s a r e u s u a lly lo w e r th a n th e r e g u la r c h a r g e s th a t a r e d e d u c te d fr o m th e a n n u a l p r e m iu m .

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ULIP Vs Mutual Fund

ULIP ULIP gives life cover benefit to the Life Cover customers in the form of sum assured Different types of entry loads.Charges are Entry Load initially huge Minimum 3 Years Lock-in Compulson of Minimum 3 years premium need to be paid investing Fund option Different fund options under one plan Option to switch across funds Switching Top-up facility Available Asignment Available Tax Benefit U/S 80C and 10(10D) Parameters Mutual Fund No Life Cover under Mutual Funds Very low entry load of 2-2.5 % No lock in for MF.ELSS is an exception No such compulsion in mutual fund No such fund option No such option Not available Not available Only 10(10D).80C under ELSS
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R i ders
R id p ro m a lim

e rs a r v is io n y b e a it th e

e d e fin e s o r g ro d d e d to b e n e fits

d a u p a p o th

s a s p e c o f p ro v o lic y to e r w is e

ia is e p

l p o lic io n s th x p a n d a y a b le

y .

a t o r

R id e r s c a n b e c la s s ifie d in tw o c a te g o r ie s a . P o lic y R id e r s b . B e n e fit R id e r s

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Pol i c y R i ders
Policy Riders a g iv e a d d itio n a l s u p p le m e n t th e a s s u re d . T h e s e r e p r o v is io n s , w h ic h b e n e fits th a t b a s ic b e n e fit o f s u m a r e :-

D a y s o f g ra c e R e v iv a l o f a p o lic y N o n -f o r f e i t u r e
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B en ef i t R i ders

E x tra s u m a s s u ra n c e o r e x p a n d s c o p e o f th e p o lic y b e n e fits L e v e l T e r m C o v e r R id e r C r itic a l Illn e s s R id e r A c c id e n t & D is a b ility B e n e fit R In c o m e B e n e fit R id e r W a iv e r o f P r e m iu m R id e r (W O M a jo r S u r g ic a l A s s is t a n c e B e n e G u a r a n te e d In s u r a b ility O p tio n

in g th e

id e r P ) fit R id e r R id e r
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R i g h t s u n der Li f e In su ra n c e Pl a n s
A s s ig n m N o m in a C la im s L o a n S u rre n d F o r e c lo s e n t tio n

e r u re

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