A guide to buying Ulips for your kids

Sure, we all want to make our children's future secure. But how we go about it differs. While some macro-vision people use less plastic and water so that the earth survives the kids, the rest of us try and buy financial security.

The way we do it again differs. Some buy plots of land, some invest in gold, yet others in shares or funds. A popular way has been to buy an insurance policy.

One thing that works in the favour of a child plan using an insurance policy is that the money is clearly earmarked for the use of the child at a target date for a particular purpose, be it education or marriage.

In case of the parent's death, the sum assured is immediately paid to the family and the insurer pays the remaining premiums on behalf of the parent. This way, the child's needs are taken care of in case of the parent's death. Moreover, the child gets another lump sum at the desired age.
Sure, a high-value term plan can take care of the child's future, but there is the real danger of the money getting used for some other purpose in the hands of an inefficient nominee of the policy.

How is it different

A kids' plan costs more than any other alternate approach, but does assure you of money in the future for your child, even if you are not there to take care of the premiums along the way.
For example, an endowment life insurance plan would cost about Rs 23,500 for a sum assured of Rs 5 lakh for a 30-year-old over a term of 20 years. In contrast, a child insurance plan for the same age, term and sum assured, will cost about Rs 24,000.

In both cases, the sum assured is paid on the death of the policyholder, but in a child plan the policy wouldn't terminate after that.

There can be two variants of children's plansendowment plan and unit-linked plan. In the first variant, staggered payments are made to your child at different ages.

For example, 20 per cent is paid when he turns 21, 20 per cent when he is 24 and the remaining 60 per cent when the policy matures. In the second variant, one may choose to get a lump sum amount at the desired age.

In the past year, we have written several times on what kind of child plans there are in the market and who should buy them. The story in this issue will talk about how you should choose a kids' plan.

Which one to buy

If you are sure you need a kids' plan, the obvious question is which one to buy. There are numerous plans in the market and the number is steadily growing.

With kids' plans constituting the maximum number of the total plans sold, they are obviously one of the best sellers for the insurance companies. So, expect more in the market soon.

Insurance: Ask the right questions

Insurance: Ask the right questions

As we enter the peak tax-saving season, you will notice an increase in advertisements related to tax-planning products. Expect an escalation in the noise surrounding tax-saving products like life insurance and mutual funds. These advertisements will almost certainly be followed up by persistent calls from telemarketers, not to mention personal visits from your friendly neighbourhood insurance agent. So as an investor you are likely to be very busy over the next few months dealing with people who will be going all out to make you buy what fetches them the highest commission, in this case life insurance.
Being financial planners, we have observed that salaried individuals are primarily concerned, more than anything else, about tying up their tax-planning in time to meet the deadline set by the employers. They don't dwell too much on the instruments that must form part of their tax-saving kitty; their objective is getting the tax-planning out of the way as soon as possible so that they can get on with their work as usual.
While we empathise with the salaried individual's focus on his work, we believe there is a case to treat tax-planning as more than a mere distraction. For one, it's the investor's hard-earned money; so treating it like someone else's business is not a very healthy attitude. Since it's his money (or your money if you happen to be that salaried individual) it's only natural to treat the money as sacred and ask a lot of questions before taking an investment/insurance decision. If they find themselves constrained for time, then they must begin the tax-planning exercise a little earlier, which is what we have been advocating to our clients for several years now.
Since a lot of noise that you will be hearing over the next few months will revolve around life insurance, particularly of the now-very-familiar ULIPs (unit linked insurance plans) variety, you must be armed with the right kind of background knowledge. This will help you pose the right questions to the telemarketer and/or counter the insurance agent's sales pitch.

GIFT AND CHILDREN POLICY

Can I gift a policy?

Yes. By contacting the insurance company you can make an absolute assignment of the policy. The person to whom you assigned it, then becomes the owner. You should check with your tax advisor to find out if the gift makes you responsible for paying gift taxes

Should I buy life insurance on my children?

If you have extra money, and want to give them a base of life insurance to “start them off”, it is okay. Otherwise your life insurance can be better spent for adequate coverage on the person who brings in income to support the family.

How is cost determined?

How is cost determined?

The cost of life insurance is determined by the insurance company’s actuaries who take the following into consideration:

1. Mortality cost, or the cost of paying claims to the beneficiaries of insured people. Mortality costs for most insurance companies have declined in recent years because people in the United States have been living longer. This means there is a longer period to collect premiums and death claims are being paid out later than originally anticipated. Still companies must be careful to select new policyholders who are basically healthy, and they should charge rates which reflect the actual mortality risks of those people who have serious health problems or who engage in potentially dangerous activities. Otherwise, they might have higher than expected costs for death claims, which could cause financial difficulties for them.

2. Operations cost, the cost of operating the insurance company and selling its products. These costs includes marketing costs (commissions; costs of operating sales offices; advertising expenses; etc.), and non-marketing costs (the cost of constructing and maintaining company buildings; salaries of officers and staff; etc.).

3. The return on investments. Insurance companies invest money until they need it to pay claims or expenses. If they can earn good investment returns, this will help to pay some of their expenses and reduce the cost of insurance. They will then be able to sell policies at lower premiums and compete more effectively against other companies.

The overall effect of all these factors determines how much the company needs to charge in order to provide life coverage while making a profit and paying dividends to its policyholders, if it is a mutual insurance company. Several large mutual insurance companies have recently changed to stockholder owned companies through a process called demutualization. In stockholder owned companies, dividends are paid to the stockholders.

SOME FACTS

LIFE INSURANCE

Why do we need life insurance? Well, the fact is, we don’t all need it. But if you have a family or people who depend on your income, it is definitely something you should consider buying in order to protect your loved ones. Life insurance can be difficult to grasp due to the different types that are available.

Do I need life insurance?

You need life insurance if some person would experience a significant financial loss in the event of your death. A common example of this is the family breadwinner whose income totally or partially supports a family. The death of that person would result in loss of income and financial harm for the remaining family members. Other reasons are to put your kids through school, pay the car note, mortgage, or other debts you have left behind, and pay funeral expenses.

Why buy life insurance?

Some reasons to buy life insurance are:

1. Income Replacement

2. Funeral Expenses

3. Pay Off Debts

4. Pay Off Medical Bills

5. Mortgage life insurance

What are ULIPs

What are ULIPs?

Unit linked insurance plans (ULIPs) are insurance plans that combine the benefit of investment with insurance. They give the investor an option to put a part of their premium in various investment portfolios and the portfolio will then grow depending upon the performance of the assets that they hold. The important thing is that the benefits at the end of the plan depend upon the performance of the portfolio where the premium is invested.

How do you track them?

Just like you see the performance of mutual fund schemes by looking at their net asset value (NAV) and their growth, one has to look at how the NAV of the ULIP plans have moved and the returns they show. This will ensure that the investor knows how his investment is performing. Insurance companies now declare their NAV regularly with several schemes declaring it on a daily basis.

What does the movement depend on?

The movement of the NAV of the plan will depend upon the composition of the assets of the plan. This means that equity options or growth options in the ULIP plans will show a different movement as compared to a conservative option or a debt portfolio. The nature of the plan and the investment will determine the way in which the performance is witnessed. Investors can make their investment choice based upon the features of a plan as well their objectives and risk taking ability.

Switch options?

A choice is available for investors to switch between various options. By looking at the performance of their particular option they are able to make the right decision in an effective manner as they can balance the risk along with the kind of returns that they would like from their investments.

HDFC'S YOUNG STAR :
ALLOCATION: 40%
CHARGE : 60%

BIRLA'S FLEXI LIFE:
ALLOCATION: 35%
CHARGE : 65%

HDFC'S ENDOWMENT PLUS
ALLOCATION: 40%
CHARGE: 60%

ICICI'S LIFE TIME PLUS
ALLOCATION: 75%
1ST YEAR CHARGE: 25%
2ND YEAR CHARGE: 25%

Policy - ING LIFE PLUS

Allocation Rate

Year Allocation %
1 83%
2 88%
3 95%
4 95%
5 95%

6th onwards 100%

Top Up 99%

This is the policy from ING Vysya Life Insurance, You can compare it with all the ULIPs of all the companies.

Only 17% charges, amazing,

Thats why ING LIFE PLUS is best policy for customer,

Ulips: How IRDA is passing the buck

Ulips: How IRDA is passing the buck

Has the Insurance Regulatory and Development Authority of India finally woken up to all the mis-selling that is happening? Well, it would like us to believe it has. But the truth of the matter is that it hasn't.

IRDA has thought of a new way to prevent the mis-selling of Unit Linked Insurance Plans (Ulips).

From now on, individuals investing in a Ulip, will have to sign a one-page document. This document will say that the individual is satisfied with what the agent has communicated and that buying the Ulip has been an informed choice.

Under Section 80C of the Income Tax Act

Under Section 80C of the Income Tax Act, investments into a Ulip can be claimed as a deduction from taxable income up to a maximum of Rs 1 lakh (Rs 100,000). But there is a slight catch to this, which most insurance companies do not tell you when they sell their insurance policies or is usually buried in the fine print.

As per subsection 3 of Section 80 C of Income Tax Act, a deduction is available only to so much of the premium which is not in excess of the 20% of the actual sum assured on the policy.

Lets try and understand what this means through an example of an individual who takes up a single premium insurance policy for Rs 1 lakh. He hopes that he will get the entire tax deduction of Rs 1 lakh, as is allowed under Section 80 C.

A Ulip has both investment and insurance features. A part of the premium is invested and another part goes towards paying the mortality charge for the insurance cover that an individual taking an Ulip receives.

As per current norms set by the nation's insurance sector regulator, the Insurance Regulatory and Development Authority, the minimum sum assured (the insurance cover that you have) in case of a single premium insurance policy, has to be 125% of the premium paid.

So if the premium paid is Rs 1 lakh, the minimum sum assured has to be Rs 1.25 lakh.

Now let's go back to what the subsection 3 of Section 80 C of Income Tax Act. It clearly points out that a deduction is available only to so much of the premium which is not in excess of the 20% of the actual sum assured. In this case, the single premium of Rs 1 lakh is 80% of the sum assured of Rs 1.25 lakh.

Hence, a tax deduction will not be available to an entire amount of Rs 1 lakh. A tax deduction of Rs 25,000, which is 20% of the sum assured, can be made.

They sell you what you don't want

They sell you what you don't want

Mis-selling (Selling insurance products without understanding your needs) is rampant and whether you are a newborn or a 60 year old, insurance will be the first product sold to you.

Selling insurance is a business and you better understand what's under all their sweet talk and projects.

Don't mix insurance with investment. They are two separate decisions having different impacts on your life.

Generally insurance is sold through friends, and family and hence there is a social obligation to buy the policy. So even if you have to honour a social obligation, buy a term plan.

What your insurance agent will never tell you

What your insurance agent will never tell you

Data from the Insurance Regulatory and Development Authority of India, the insurance regulator, suggests that 90 per cent of the insurance sold by the private insurance companies during the last financial year (April 2006-March 2007) were Unit-Linked Insurance Plans.
A Ulip has, both, investment and insurance features. A part of the premium is invested and another part goes towards paying the mortality charge for the insurance that an individual taking a Ulip receives. This two-in-one feature is one of the reasons for the popularity of this product.

The other major reason being the high upfront commission offered to insurance advisors selling the product. This leads to insurance advisors pushing Ulips more than other insurance products like term insurance.

Let us say an investor takes a 20-year Ulip. Every year he has to pay a certain premium. In the first year, 15-71 per cent of the premium can be deducted as a premium allocation charge, depending on which insurance company the individual goes to.

What this means is that if an individual decides to pay a premium of Rs 50,000 and the premium allocation charge for the first year is 30 per cent, then only Rs 35,000 will be invested. The remaining Rs 15,000 the insurance company will recover as a premium allocation charge.
The majority of this will be passed onto the insurance agent. When you compare this to the around 2-4 per cent a mutual fund agent makes on selling a new scheme, this is fantastic.

Try buying a simple term insurance policy from an insurance advisor. For those individuals who already have an investment plan in place through mutual funds, it does not make sense to buy a Ulip. But at the same time they do need insurance and term insurance policy which simply insures an individual for a certain amount for the period of the policy, is their best bet.

If the policy holder dies during the period of the policy, his nominee will get the amount for which the individual is insured, if he survives the period, he does not get anything.

Most Indians look at insurance either as a mode of tax saving or investment. Hardly anyone looks at insurance for the sake of insurance. Given this, most do not like to take on a term plan, as they do not get any money if they survive the period of the term plan.

Using this fact as a selling point, an insurance advisor usually tries to dissuade any individual from taking a term insurance policy. The main reason though is that the premiums to be paid in case of term insurance policies tend to be very low.

Also a lot of private insurance companies run contests for their insurance advisors. These contests have expensive cars, foreign trips, etc., as prizes. Insurance advisors are eligible for it only if they manage to generate a certain amount of new business for the company.

If insurance advisors are to get anywhere near having a chance of winning these contests, they can never get there by selling low premium term insurance policies. They have to sell Ulips to be eligible for prizes that these contests offer. Some insurance companies do not consider term insurance policies sold for these contests.

ING LIFE PLUS

NEW POLICY FROM ING VYSYA LIFE INSURANCE:

ING LIFE PLUS:

DEAR FRIENDS,

IT GIVES ME IMMENSE PLEASURE TO INTRODUCE YOU MOST SUCCESFUL POLICY OF ING VYSYA (COMBINATION OF PURE INSURANCE AND ULIP ). NO HIDDEN FACTORS, ALL THE TRUTH IN FRONT OF YOU.

Age

ü Min Age at entry : 10 lbd (for age 10 and 11 the risk will commence 2 years later)

ü Maximum Age at entry : 45 lbd

ü Maximum Maturity Age : 65 lbd

ü Non Medical Plan from Age 10 to 45 years

ü Customize the policy as per the customer age

Premium Paying Term

ü 10 Years

ü 15 Years

ü 20 Years

Premium Payment Term = Policy Term

Sum Assured

ü 10 year term: 5 times annual premium

ü 15 year term: 7.5 times annual premium

ü 20 year term: 10 times annual premium

ü E.g. If annual premium is Rs. 20,000/- and term is 20 years then the sum assured is 2,00,000 (i.e. 20,000 x 10 = 2,00,000)

Enhanced Protection Cover

The risk cover increases automatically by a simple rate of 5% of the sum assured every policy anniversary provided premiums are paid up to date.

E.g. If premium is Rs.50,000/- p.a. for a 20 year term, then normal sum assured = 50,000 x 10 = 5,00,000

Enhanced Protection cover = 5% increase over 5,00,000 every year i.e. 25,000 p.a.

Therefore, in 20 years this will reach to 4,75,000

So total risk by end of term = 5,00,000 + 4,75,000 = 9,75,000

ü The 5% automatic increase in life cover makes up for inflation

ü Incase the Fund Value depletes e.g. a customer making a partial withdrawal, the Enhanced Protection Cover will provide enhanced protection incase of death.

ü The increase in life cover is without any further medicals during the entire policy term as long as premiums are paid regularly.

Premium

ü Minimum Premium

Annual Mode :10,000

Half Yearly Mode : 5,000

Quarterly Mode : 2,500

Monthly Mode : 833

ü Maximum Premium

Annual Mode :50,000

Half Yearly Mode :25,000

Quarterly Mode :12,500

Monthly Mode : 4,166

(Minimum premium to be collected upfront Rs 2,500/- monthly option available only with ECS,CC or standing instructions)

ü Enables the customer to pay as per his Convenience

ü Allows entry into the market at different points enabling a SIP mode of investment

Choice of 5 funds

ü Debt Fund - 100% in debt instruments

ü Secure Fund- Up to Min of 10% & to a max of 20% in equity

ü Balanced Fund- Up Min of 20% & to a max of 40% in equity

ü Growth Fund- Up to Min of 40% & to a max of 60% in equity

ü Equity Fund- Up to Min of 90% & to a max of 100% in equity

Maturity Benefit

ü On completion of chosen policy term the balance available in the policy holder fund value is paid

Settlement Options

ü Entire maturity benefit can be received in one lump sum OR

ü 3 annual installments OR

ü 5 annual installments

The settlement option should be exercised 3 months prior to maturity date.

ü The flexibility to settle maturity proceeds in 1 , 3 or 5 years enables the customer plan receipt of maturity proceeds based on his needs

ü It also gives scope to utilize or avoid market volatility based on the market performance at that point in time

Partial Withdrawals

ü On completion of 5 Policy Years partial withdrawals can be made

ü One partial withdrawal per policy year is allowed, restricted to 25% of the Fund Value.

ü Minimum balance in policy holder fund value after any withdrawal should be equal to one and half years annual premium

ü Un utilized partial withdrawal cannot be carried over in the next year.

ü No partial withdrawals are allowed while the life assured is a minor

ü Partial withdrawals are subject to charge of 1% of the amount withdrawn and minimum amount is Rs. 100/-

Surrender Benefit

ü Any time after the completion of the third Policy anniversary

ü If at least one full years premium is paid

ü Amount payable on surrender shall be the Fund Value less the applicable surrender charges. (Fund Value – Surrender Charge)

Death Benefit

ü On death before the policy maturity date, the (Sum Assured plus Enhanced Protection Cover) prevailing at that time OR the Fund Value, which ever is higher, will be payable

ü Partial withdrawals if any made during the preceding 24 months are deducted from the Sum Assured while calculating death benefit

ü If age at entry is less than 12, risk will commence at the end of 2 years from the date of commencement of the policy.

ü Lien Clause: If age at entry is 12 and above, in case of death within 6 months from the policy commencement date, only the Fund Value is payable.

Fund Management Charges

Fund	% per annum
Debt Fund	0.75%
Secure Fund	1.00%
Balanced Fund	1.25%
Growth Fund	1.25%
Equity Fund	1.50%

FOR MORE CLARIFICATION, FEEL FREE TO CONTACT ME ON MY CELL NO. 9811511501.

Just get insured for your beloved ones.

Hi All,
Myself Vivek Patwal working with ING VYSYA LIFE INSURANCE CO. LTD. as an Insurance Advisor. And its a pleasant experience for me in sales field. I saw many people enjoying life with full expense in beer and wine, smoking but refuse to invest in their life.
So advised people to get insured because:
* First, life insurance helps you to protect your income and your family’s financial future in case you are not around.
*Second, life insurance works as a long term saving, thus giving you the financial strength to achieve your life goals. It also gives you tax benefits.
*Third, life insurance makes sure that you have regular income after you retire and also helps you maintain your standard of living.
*Final, life insurance is a safe, long-term investment, free from the risk of market swings. At the end of the term, you or your family can enjoy added returns on investment.

Most people are smart enough to understand the need for life insurance. But not all of them know that since insurance products are based on the lifestage and need factors, they are all different. So it is better to approach them with a bit of advice, so you can maximise the plan’s benefit. That’s where the LifeMaker comes in.

So here I am please to answer your querries regarding Insurance and ULIPs plans.