For several years now, insurance products, particularly Unit Linked Insurance Plans (Ulips) have occupied an important place in the financial portfolios of non-resident Indians. A recent decision by India’s insurance regulator to cap charges and the steady growth of stock indices promise better returns now.
Huge gains have been reaped when the Indian stock indices were soaring. When markets were on a bull run, Ulips registered an astronomical growth of 95 percent until September 2007. In 2007-08, of the money earned in first premiums by life insurers, around 70 percent came from Ulips. In these policies, the entire corpus of the premium can be invested in equities. This makes these schemes runaway winners in booming markets and equally a nightmare in meltdowns.
With the recent downturn in equity markets exposing the downside of the insurance industry’s favourite product in recent years—Ulips—the damage control began. Ulip sales dipped sharply during 2008-09. The industry started working to standardise fee structures to make Ulips more transparent. On their part, investors faced with an erosion of net-worth began demanding that insurance companies make clear the percentage of the premium corralled as administrative and other charges.
A Ulip is a market-linked life insurance plan, which invests the premium money in various proportions in the equity and debt markets. In effect, this ensures that the returns on such plans are linked to the performances of the markets while also offering the individual an insurance cover at the same time.
It offers an opportunity to NRIs to earn above-average returns over the long term by investing in Indian stock markets. The expenses incurred by the ULIP ultimately impact its returns- the lower the expenses the higher will be the returns and vice versa. As with expenses, the fund management team and style too hold significance while considering a Ulip.
Ulips come in a variety of options including child plans and retirement plans. For NRIs these are of particular significance. Most NRIs in the Gulf need to have their children raised or educated in India. A regular child plan comes in various options such as money-back plans, traditional endowment child plans and unit linked plans. While traditional endowment plans and money-back plans offer moderate returns that may even appear disappointing, unit linked child plans offer the NRI an opportunity to earn market-linked returns, which from a 10-15 year perspective can prove very lucrative.
cosy retirement
Similarly, NRIs in the Gulf look forward to a cosy retirement back home. Pension/ retirement plans help individuals in building a pool of savings over a period of time and facilitate in meeting post-retirement needs. Again, pension plans offer a variety of options to NRIs. Regular as well as unit linked pension plans are available. Individuals can invest in a pension plan, which suits their risk profile and long-term objectives best.
Apart from the needs mentioned above, the NRI may also want to build a corpus for buying a second property or may simply want to invest the surplus that he generates on his income. Regular as well as unit linked endowment plans can help NRIs achieve this objective.
The NRI can also consider buying an insurance plan in the name of his parents or his wife/children to secure their financial future. Therefore, it makes sense for NRIs to consider taking insurance in India for a variety of reasons.
Ulips have now become considerably more attractive for two reasons. One – the Indian stock indices are looking up, and more importantly, two – the watchdog Insurance Regulatory and Development Authority (Irda) has put a cap on overall charges that insurance companies can charge subscribers of Ulips.
Ulip charges have been capped at 300 basis points for insurance contracts up to 10 years and 225 basis points for contracts over 10 years. If a fund earns a yearly return of 15 percent, a policyholder has to get a minimum return of 12 percent. The ceilings will come into force from October 1 this year. All existing products that do not meet the requirements are to be withdrawn or modified by December 31, 2009.
Moreover, IRDA has said that any extra premium due to underwriting rising from extraordinary health conditions, cost of rider benefits, service tax on charges should be excluded in the calculation of the net yield. There should be a mention to the gross and net yield to the customer at the time of sale.
Currently, Ulip charges on an average work out to around 375 basis points. As most products have an average tenure of 13-15 years, the return to the policyholder could go up by 150 basis points.
Industry experts say this will make ULIPs even more transparent and favourable for customers. With a cap on overall charges, customers stand to benefit in the form of higher returns. Moreover, lower charges on products with terms greater than 10 years will provide impetus to long-term policies. According to one estimate, a subscriber paying an annual premium of Rs60,000 is now likely to get over Rs100,000 more when the policy matures in 15 years from now.
Huge gains have been reaped when the Indian stock indices were soaring. When markets were on a bull run, Ulips registered an astronomical growth of 95 percent until September 2007. In 2007-08, of the money earned in first premiums by life insurers, around 70 percent came from Ulips. In these policies, the entire corpus of the premium can be invested in equities. This makes these schemes runaway winners in booming markets and equally a nightmare in meltdowns.
With the recent downturn in equity markets exposing the downside of the insurance industry’s favourite product in recent years—Ulips—the damage control began. Ulip sales dipped sharply during 2008-09. The industry started working to standardise fee structures to make Ulips more transparent. On their part, investors faced with an erosion of net-worth began demanding that insurance companies make clear the percentage of the premium corralled as administrative and other charges.
A Ulip is a market-linked life insurance plan, which invests the premium money in various proportions in the equity and debt markets. In effect, this ensures that the returns on such plans are linked to the performances of the markets while also offering the individual an insurance cover at the same time.
It offers an opportunity to NRIs to earn above-average returns over the long term by investing in Indian stock markets. The expenses incurred by the ULIP ultimately impact its returns- the lower the expenses the higher will be the returns and vice versa. As with expenses, the fund management team and style too hold significance while considering a Ulip.
Ulips come in a variety of options including child plans and retirement plans. For NRIs these are of particular significance. Most NRIs in the Gulf need to have their children raised or educated in India. A regular child plan comes in various options such as money-back plans, traditional endowment child plans and unit linked plans. While traditional endowment plans and money-back plans offer moderate returns that may even appear disappointing, unit linked child plans offer the NRI an opportunity to earn market-linked returns, which from a 10-15 year perspective can prove very lucrative.
cosy retirement
Similarly, NRIs in the Gulf look forward to a cosy retirement back home. Pension/ retirement plans help individuals in building a pool of savings over a period of time and facilitate in meeting post-retirement needs. Again, pension plans offer a variety of options to NRIs. Regular as well as unit linked pension plans are available. Individuals can invest in a pension plan, which suits their risk profile and long-term objectives best.
Apart from the needs mentioned above, the NRI may also want to build a corpus for buying a second property or may simply want to invest the surplus that he generates on his income. Regular as well as unit linked endowment plans can help NRIs achieve this objective.
The NRI can also consider buying an insurance plan in the name of his parents or his wife/children to secure their financial future. Therefore, it makes sense for NRIs to consider taking insurance in India for a variety of reasons.
Ulips have now become considerably more attractive for two reasons. One – the Indian stock indices are looking up, and more importantly, two – the watchdog Insurance Regulatory and Development Authority (Irda) has put a cap on overall charges that insurance companies can charge subscribers of Ulips.
Ulip charges have been capped at 300 basis points for insurance contracts up to 10 years and 225 basis points for contracts over 10 years. If a fund earns a yearly return of 15 percent, a policyholder has to get a minimum return of 12 percent. The ceilings will come into force from October 1 this year. All existing products that do not meet the requirements are to be withdrawn or modified by December 31, 2009.
Moreover, IRDA has said that any extra premium due to underwriting rising from extraordinary health conditions, cost of rider benefits, service tax on charges should be excluded in the calculation of the net yield. There should be a mention to the gross and net yield to the customer at the time of sale.
Currently, Ulip charges on an average work out to around 375 basis points. As most products have an average tenure of 13-15 years, the return to the policyholder could go up by 150 basis points.
Industry experts say this will make ULIPs even more transparent and favourable for customers. With a cap on overall charges, customers stand to benefit in the form of higher returns. Moreover, lower charges on products with terms greater than 10 years will provide impetus to long-term policies. According to one estimate, a subscriber paying an annual premium of Rs60,000 is now likely to get over Rs100,000 more when the policy matures in 15 years from now.
Source:http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=market+news&month=August2009&file=Business_News2009080392723.xml
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