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Universal life plans, a combination of Ulips and traditional plans

With its cash cow, unit-linked insurance plans (Ulips), ceasing to be as lucrative as it used to be in view of the new guidelines by the regulator, the insurance industry has introduced a cross-breed in its stable universal life Insurance plans. These are a combination of Ulips and traditional plans their structure is like that of Ulips, but they borrow their investment strategy from traditional plans.

The Insurance Regulatory and Development Authority (Irda) is already working on guidelines for ULPs. These are expected to be out in a couple of months. Says Irda chairman J. Hari Narayan: “ULPs resemble a Ulip in structure and, therefore, we don’t want investors to mistake it for Ulips. Also, since they resemble Ulips, there is a risk that ULPs will get tailored like Ulips as they are today. Therefore, we need to bring ULPs under a fresh set of regulations, which clearly specify charges and other disclosures.”Though a popular concept in the West, in India the genesis of ULPs can be largely attributed to the new regulations that have, for insurers, taken sheen off the Ulips. In fact, the focus is expected to shift completely towards traditional plans and ULPs.

Even as the regulator is busy framing the guidelines, two insurers have already launched ULPs in the last one year; other insurers are likely to follow suit.Like Ulips, ULPs clearly specify the charges and the manner in which they are deducted. But like traditional policies, they invest heavily in debt instruments.At the most basic level, ULPs work like Ulips–you pay a premium and choose a sum assured, which is a multiple of the premium. A major portion of the premium you pay goes out in premium allocation charges and the remaining is invested. You pay more costs out of this investment fund, such as mortality and administration charges.

However, ULPs are different from Ulips in terms of investment strategy. Look at these like bank accounts. Since they invest in the market, Ulips have net asset values that can be monitored on a daily basis. So, at the end of each day, you would know whether your bank balance has gone up or down. ULPs, on the other hand, invest primarily in debt products and their return is dependant on the rate the insurer declares periodically. This means that your bank balance would change only when the insurer declares a new rate.

This entry was posted on Wednesday, October 27th, 2010 at 11:35 am and is filed under Life Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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