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We have written a series of article on ULIPs by pointing out the major advantages and disadvantages of ULIPs. We had also come up with articles on comparison of Mutual Funds & ULIPs and comparison of Fixed Deposits & ULIPs. We have received both positive and negative comments on these articles. Our intention is very simple; people should understand the importance of Insurance. It is not just an investment but it is a tool to cover the risk of your life. It helps your dependants to continue their life with same standard of living even in your absence. Now IRDA (Insurance Regulatory & Development Authority) has imposed a cap (maximum limit) on the charges that insurers levy on customers. In this article we will give you a brief about the effect of this move on your investment. ULIPs will Turn Attractive on New Fee Cap
Unit-linked insurance plans (ULIPs) are one of the hot products of life insurers at the same time people had a complaint that Charges are very high in ULIP. But now ULIPs could turn more attractive with the regulator, Insurance Regulatory and Development Authority (IRDA), imposing a cap on the charges that insurers impose on customers. The regulator’s move comes in support of complaints that ULIP charges are higher compared to mutual funds. ULIPs are now expected to become more competitive than mutual fund products.
Important Points to Note
· ULIP return may rise by 150 bps (1.50%)
· 300 bps (3%) is the cap on ULIP charges for investments upto 10 years
· 225 bps (2.25%) is the cap on ULIP charges for investments more than 10 years
· Currently ULIP is charging an average of 375 bps (3.75%) on all Investments
The concept is very simple if a fund earns a yearly return of 15%, a policyholder has to get in hand a minimum return of 12% for investments upto 10 years.
Fund Management Charges
Currently, most of the mutual funds are charging 2.5% of the Fund value as Fund Management Charges (FMC). But as per the announcement of IRDA the fund management charges should not exceed 1.5% for insurance contracts of over 10 years 1.25% more than 10 years. Understand one thing most of the times insurance contract will be for more than 10 years. There is a difference of 1.25% in Fund Management charges of ULIP and Mutual Fund. Below given table will help you in understanding the charge structure in ULIPs and Mutual Funds.
*Allocation charges are not included in this
Benefits of New Fee Cap
IRDA has announced a cap (maximum limit) on charges imposed on ULIPs. It has strictly mentioned that the difference between the ‘gross yield’ and the ‘net yield’ of ULIPs should not exceed 3% for policies less than 10 years and 2.25% for policies more than 10 years. Out of these percentages, fund management charges are limited to 1.5% for the shorter policies and 1.25% for the longer policies.
For your understanding; Gross Yield is the fund’s total investment returns and ‘Net Yield’ is what gets delivered to the policyholder.
This move by IRDA will help you to gain a minimum of 1.5% more return on your investments because presently most of the insurance companies are charging 3.75% on the Gross Yield of your investment. But as per the new standard brought by IRDA the charges cannot exceed a maximum of 2.25% (for investments more than 10 years). You might feel that the difference of 1.5% doesn’t make much difference in your return but the fact is different.
Example:
Below given table will help you to understand the effect of charges on your return.
Assumptions
Following are the assumptions of this example;
· Yearly Contribution – Rs.1,00,000
· Return on Investments – 14%
· Allocation Charges:
* 1st Year – 10%
* 2nd Year Onwards – 2%
· Policy Term – 20 Years
· Premium Payment Term – 15 Years
Returns as per Previous Charges (3.75%)
.JPG) Returns as per IRDA Recommended Charges (2.25%)
.JPG) Difference in Returns
As a result of New Charge Cap, over a period of 20 years your total returns will be Rs. 21,91,082.59 more than the present returns. It means, the profit of insurance companies will reduce and the returns of investors will increase. Presently a major part of your returns are eaten by insurance companies. But after the introduction of New Charge Cap they won’t be able to take much out of your investments. As a result your returns will increase.
Loop Holes in New announcement
IRDA has introduced New Charge Cap on Insurance but they didn’t mention anything about Allocation Charges. Companies can increase or decrease this charge as per their wish. They might compensate the loss by increasing the allocation charges.
Presently there are plans with different allocation charges; it ranges between 2% - 60%. Most of the times investors will be cheated by insurance advisors, they always suggest you the worst plan with maximum allocation charges because agent commission will be more in such plans. So think twice before choosing a plan.
How IndianMoney.com can Help You
We are not insurance advisors and we are not working on commission basis. Our intention is to make all Indians financially literate. There are 1000s of financial products in Insurance, Mutual Fund, Banks, etc. choosing the best one among these is very difficult job. As we have mentioned earlier, most of the sales people will stress on the worst product as it offers more commission for them, but we offer you the best financial solution for all your financial problems as we only advise.
For our last article on ULIPs we got so many comments by indicating that we are acting as an insurance agent and there are no ULIPs with 10% allocation charges. We are repeating again there are ULIPs with 2% allocation charges. Like the same there are ULIPs that has generated 16% returns and minus returns also. Choosing the best one is your responsibility. If you don’t know about this, it is only because of your financial illiteracy. We will guide you with valuable suggestions and advices related to any of your financial queries. Only thing you have to do is login to www.IndianMoney.com.
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| Comments On this Article | ||
| 1 | good one | |
| By. Rama Krishna - On 10-02-2010 | ||
| 2 | Need more information | |
| By. SUDHARANIS - On 30-01-2010 | ||
| 3 | Do these new ULIP charges are applicable for the old ULIP policies? | |
| By. Prakash Patel - On 23-01-2010 | ||
| 4 | I would like to invest in ULIP which is offering with less allocation charges and with good returns. Please call. | |
| By. Suresh C - On 09-11-2009 | ||
| 5 | sir,what are recent cap put on comission of agents .plz provide some information on it. | |
| By. shaileshkumar - On 02-10-2009 | ||
| 6 | what ulip gives best return and secured also for 15 years term? | |
| By. susanta sen - On 06-09-2009 | ||
| 7 | nice article | |
| By. kamal sachdeva - On 05-09-2009 | ||
| 8 | wants to invest in ULIPs, please call me....and help me... | |
| By. Gopal Masih - On 26-08-2009 | ||
| 9 | Is continuing in LIC money plus policy a wise decision. I have a 3 y old policy with an annual investment of 30000 in a lump. I have opted for growth option since the begining. although NAV value for balanced option has grown to 12 Rs the growth option has it lingering at 10.80 Please advise | |
| By. sanjay - On 10-08-2009 | ||
| 10 | Intelligent efforts for spreading financial literacy , keep it up, | |
| By. Bhavesh Nayak - On 07-08-2009 | ||
| 11 | More articles | |
| By. Gautam Ghosh - On 01-08-2009 | ||
| 12 | May be it's of your interest. | |
| By. rajat - On 30-07-2009 | ||
| 13 | May be it is of your interest. | |
| By. animeshSIR - On 30-07-2009 | ||
| 14 | Rightly said there are companies which charge only 3% as allocation charges one of them is IDBIFortis Wealthsurance | |
| By. Moiin - On 29-07-2009 | ||
| 15 | There is no allocation charge for Birla Sunlife Dream Plan & Children Dream Plan | |
| By. Ravi - On 29-07-2009 | ||
| 16 | Sir, please give me details of LIC's ULIP plan namely Market Plus& money Plus. | |
| By. mahaveer bhupal chougule - On 29-07-2009 | ||
| 17 | Sir, this site is the best plateform for understanding the diffrence between ULIP and Traditional insurance plans. thanx. | |
| By. Ravi Kumar Jain - On 29-07-2009 | ||
| 18 | Your idea to make India financially literate is working. I would be glad to join hands and move this idea forward in my capacity. This article was clear and concise. Keep up the good work! Thank you, Chitrang | |
| By. Chitrang - On 28-07-2009 | ||
| 19 | pl. suggest me best ulip and health policy | |
| By. pramod - On 28-07-2009 | ||
| 20 | Sir, Pls advise best ulip pention plan. Tks Shyam | |
| By. Shyam P. Yadav - On 28-07-2009 | ||
| 21 | very good | |
| By. kuntal biswas - On 28-07-2009 | ||
| 22 | Since long time I am thinking to take HDFC children plan (ULIP) But due to very low allocation in first 2 year,I am avoiding same. Now any change in allocation &administration charge. | |
| By. NIRODKUMAR.JENA - On 27-07-2009 | ||
| 23 | kindly throgh some light on effect of newIRDA norms on icici-Lifestage pension plan (ULPP).Is it better to take now or to wait upto 1-10-2009 | |
| By. P RAMESH BABU - On 27-07-2009 | ||
| 24 | Good article. People who think that www.IndianMoney.com. is acting as an agent are with worng thinking because we have articles on this website not only about insurance. | |
| By. Divakar Tandon - On 27-07-2009 | ||
| 25 | Interesting article.... It woud certainly enhance the knowledge of not so literate about financial schemes | |
| By. Amit Dwivedi - On 27-07-2009 | ||
| 26 | Article was interesting but the investor may hesitate to invest in ULIPS because of loop holes in allocation charges, this makes private insurance companies to take advantage over investor, I think IRDA should come up with standard allocation charges which will be constant rate for all the companies this could help in retaining & attracting new customers. | |
| By. vishvas - On 27-07-2009 | ||
| 27 | Dear Sir, I am interested to buy an ULIPS, after the implimantion of Introduction of New Fee Cap. So please contact me, for ULIPS. I will purchase the products. With warm regards, Manish Vyas 022 - 2500 1653 Cell No. : 09870 451948 | |
| By. MANISH VYAS - On 27-07-2009 | ||
| 28 | If I am looking for pension which ULIP is good for me. I am currently 31 years old and looking for a policy between 15-20 yrs. Also let me know what are the ULIPs are doing good and which ULIP has less allocation and fund management charges ? | |
| By. Subhajit Ghosh - On 27-07-2009 | ||
| 29 | Suggest may best ULIP policy for my child - who is now 7 months old from SBI, HDFC | |
| By. R. Karthikeyan - On 27-07-2009 | ||
| 30 | helo | |
| By. rajkumar chaurasia - On 27-07-2009 | ||
| 31 | this socalled cap in chages is all non-sense. until unless insureance co.s reduce the amount of commission they pay to agents , no ulip can be attractive for the investors. you are giving e.g of how a difference of only 1.5% can affect the final value of an investement. then why arent you showing that if 40-60% of your premium is shaved off as allocation charges, then what would have been the value of investment if the entire amount was to be invested by the co. insurance company are big cheats and they work for themselves and the agents but definetely not for the investors | |
| By. anurag - On 27-07-2009 | ||
| 32 | One must read & understand intricacies involved in choosing financial products. | |
| By. Umesh Tasgaonkar - On 27-07-2009 | ||
| 33 | I have planned to take a pension plan from ICICI-(LIFE STAGE PENSION PLAN.).Please suggest me whether to take the policy now are after 1-10-2009. kindly educate me the effect of new IRDA norms on this new policy. note -- Thank you for suggesting BIRLA SUN LIFE PLATINUM PLUS III | |
| By. P RAMESH BABU - On 27-07-2009 | ||
| 34 | Must read & understand. | |
| By. Umesh Tasgaonkar - On 27-07-2009 | ||
| 35 | hi | |
| By. TUSHAR BANSAL - On 26-07-2009 | ||
| 36 | Informative&educative. | |
| By. R.Ramaswamy - On 26-07-2009 | ||
| 37 | Sweety, Read this one. Good | |
| By. Latha Shenoy - On 26-07-2009 | ||
| 38 | thankx for the first aid | |
| By. R.P.Verma - On 26-07-2009 | ||
| 39 | Your information providing is not only valuable but it is a great service to enlighten the people in society and learning to normal person in country about what is right investment & how to protect our self from the grips of money sucking parasitic schemes in market. | |
| By. Mr. Swaran Singh - On 26-07-2009 | ||
| 40 | Dear Sir, my date of birth is 12-07-1982. I am thinking of buying Kotak's SAFE INVESTMENT plan of premium 18k per year. they are giving a guranteed maturity benefir of about 4 lacs and a sum assured of about 3,60,000. Should i go for it or instead should i select a combination of 3 products, i.e a bank FD (to get the Gurantedd maturity benefit) a pure term insurance plan (to get the Sum assured equivalent to that given by Safe investment) and a Good Mutual fund ( to give a return at par to that of kotak's SAFE INVESTMENT). Kindly suggest me which is a better option :- A) to Buy kotak safe investment of premium 18 k or B) to buy a combination of an FD,A Pure Term and a Mutual Fund , total money amounting to 18 k. Warm Regards, Ritesh Kumar | |
| By. Ritesh Kumar - On 26-07-2009 | ||
| 41 | I have taken a ULIP LIC Money Plus policy 2 years back. Does these charges will be applicable to my policy also? | |
| By. Ajay Malik - On 26-07-2009 | ||
| 42 | Informative | |
| By. ramkumar.sreedharan@icicibank.com - On 26-07-2009 | ||
| 43 | Which is the best ULIP with lowest allocatio charges & good return? | |
| By. RM PANDEY - On 25-07-2009 | ||
| 44 | v good article abt charges on ULIP`S | |
| By. Deepank - On 25-07-2009 | ||
| 45 | The following needs to be considered in this arrangement: - Premium Allocation charges vary as per insurance product, thus pension products with 2% allocation rates are definitely a winner. What needs to be understood is, how will this impact the policies purchased by customer before this decision and maturing later. As most of the insurance agents sold the ULIP story on stock market, most of the allocation is towards equity funds. It is quite possible that fund management strategies might change and insurance companies might drive a hard bargain from broking houses. What needs to be also understood is how the investment in non-listed securities works?? | |
| By. Piyush Rastogi - On 25-07-2009 | ||
| 46 | Pl guide me Birla Sun Life Platinum III & Retirement plan Freedom 58. How attractive or beneficial both for investment. Freedom 58 with SIP. Pl suggest any peers with both. Regards, Milind | |
| By. MILIND SAWANT - On 25-07-2009 | ||
| 47 | So Imformative. Nice Artcile, usefull for those who dont know much about ULIP. Thanks for sharing. | |
| By. AMOD KUMAR - On 25-07-2009 | ||
| 48 | IndianMoney.com is doing an excellent job of creating awareness about financial matters. I have gained more knowledge about insurance, ULIPs, Stock Market etc. Thanks to Indian Money.com | |
| By. K. Madhusudhana Rao - On 25-07-2009 | ||
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