Category: Insurance

ULIPs (Unit Linked Insurance Plan) are unique investment products with complicated structure.
Though it has a label ‘Insurance’, actually it is an investment product, but bundled with insurance coverage.
Investors must subscribe the ULIP insurance only after gaining required knowledge on how to manage this product.
Unlike any other investment products, performance of the ULIPs are not only dependent on insurance company or fund managers, but the investors also have to play a crucial role to succeed.
Read my case study on successful ULIP investing in the following page.
However, read below points carefully before jumping directly to the Case Study.
Should you invest in ULIP ?
You must understand that the ULIP insurance policy is NOT a pure insurance policy. It focusing to create wealth to the investors who pay premium for years, It bundled with investments as well as insurance to the subscribers.
However, the subscribers are presented with options to either opt or deny the insurance option bundled along with ULIP policies or select only for investments. However, minimum required insurance coverage is required with most of the policies.
Some of the ULIP policies are promoting the insurance along with the product as a mandatory package.
But, in my opinion, ‘term insurance’ is the best option than a ULIP policy once if you are looking for only insurance coverage.
Where do you start investing in ULIP? If so, how to invest in ULIP successfully?
As said in my previous article about ULIP policies, an essential checklist for ULIP buyers, is a best place to know more about the entirely different structure and complexity of the product as well as various charges associated with the policies.
If someone subscribes a ULIP policy with a long time investment focus, it would work better than those opt it for short time focus.
What are the investment methods within ULIP policies
Majorly focusing on investments, every ULIP policies have multiple funds, similar to mutual funds, associated with it.
Product catalog and fund performance chart of ULIP policies will give an idea about the funds associated with the policy.
These funds would be from equity, debt, liquid fund segments and generally 6 to 8 such funds are available for investors to opt and park their money.
If an investor do not have enough knowledge on the structure and how ULIP works, certainly the product is going to be a nightmare for him.
A common practice I have found with ULIP investors that, even though they have privilege to select the required funds to invest their money.  Because of ignorance, most of the ULIP buyers are transferring this great privilege to the insurance companies to select funds behalf of them. It is a big mistake.
“In order to succeed with ULIP Insurance, subscribers must learn to select the right fund in right time.”
What are the costs associated with ULIP policies?
Investors of the Unit Linked Insurance Plan must aware about the costs are associated with ULIP policies.
Various common costs are associated with ULIPs needs to be identified. Most common charges in ULIP are insurance mortality charge, Premium Allocation Charge, Surrender Charge, Policy Administration Charge, Fund Management Charge etc. It also included with Policy Re-direction Charge, Partial Withdrawal Charge, Policy Revival Charge, Additional Service Charge, Additional Fund Switching Charge and so on. Go with this ULIP cost checklist to know more about this.
Investors of the ULIP policy must carefully learn about all the charges associated with the product along with the details of available free service and possibility of the increase or decrease of any charges in the future.
How to select a right funds with ULIP ?
As informed, investors are investing money to the ULIPs as regular premium. It would then park to the selected funds associated with the policy after reduction of the charges.
An investor of the ULIP policy must be aware about the type of funds associated with his ULIP and its nature and performance.
Fund switching is a mandatory action for investors and that needs to be done by identifying the right time and to the right funds. In order to do this, an investor must aware about the performance of each funds associated to the ULIP policy along with its long term performance, say 5 to 10 years.
Only select the funds which has high performance record and park the money on 3 to 4 such funds.
ULIP investing – a case study
In this case study, I am sharing my own ULIP investment experience along with the actions I have done to bring my invested capital to double or triple within short span of time.
Read carefully. This is not rocket science, but only commonsense.
Starting of ULIP investments
My first experience of investing in the ULIP insurance is through a friend, he was an agent to one of the reputed insurance company in India.
He had approached me and introduced the product and forced me to subscribe and of course by convincing as it is a best product. I was unable to reject him because he is my friend and thus subscribed the first ULIP policy.
With a minimum premium payment term of three years I have subscribed this ULIP by transferring Rs. 1000 in each month through the Systematic Investment Plan or SIP facility.
Later, I have subscribed another ULIP policy with another company. In the second policy, I was paying Rs. 6k as half yearly premium and directly to the branch.
Thus I had two ULIP policies in hand and from two insurance companies.
I have stopped the SIP with the first policy after it completed exact three years. Thus I have paid a total premium of Rs. 36k to the first ULIP.
For the second ULIP, I have payed 66k for 5 years. A total of 12k paid in each year as two installments, to the second ULIP policy.
Home work and action before investing into the ULIP products
As I was new to this product, my first course of action was going through collecting all the available documents of both policies to understand its structure. I specifically went through terms and conditions and various expenses and costs associated to the policy.
I found the costs and fees are different to policy to policy.
However, I have specifically noted all those costs especially free service offers with these two ULIP policies. I particularly focused on the free fund switching facility available to investors with these ULIPs in each year.
I had then collected all the details about the associated funds with both ULIPs and had a through study on the performance of each funds. This have done using the ‘fund performance data sheet’ available from the insurance company branch. I then listed the best equity and debt funds to invest my money.
After three years, I had checked the fund value of the first ULIP and learned that the fund value has shrink to just above to the half of my total money invested. Other half of the money went through different costs and charges associated to the ULIP.
This was almost same to the second policy too.
Required knowledge for investors on how to invest in ULIP products
Every ULIP investors should have very good awareness and knowledge on the stock market and stock market investing.
Having knowledge on Debt and Liquid fund segments would be an added advantage.
Because, the performance of the funds are directly linked with the performance of stock markets and debt, liquid markets.
How my stock and mutual fund investing experience helped?
My successful stock market investment history and the experience of providing consultancy to friends and third party clients on successfully managing investment portfolios, given an invaluable advantage to me.
This knowledge encouraged me with enough confidence to play with the fund switching through identifying the right time.
I have specifically taken care to not give any additional charges to the insurance companies on my switching activities.
Here is how my invested capital grown to double and triple with time
In the 8th year of my first ULIP subscription, I have checked the fund value and found the value is triple than the invested amount of 36k.
“How I achieved that?”
As I have informed, I was aware about the best performing funds in both ULIPs. I was focusing on the stock market movements especially the bear phases. When the stock market collapses to the bottom level, all my funds will be switched to the best performing equity funds with both ULIPs.
In the same way, when the stock market is in its peak, known as the bull phase, these equity funds will be switched back to the best debt or liquid fund. Thus I avoided the capital erosion from next bear phase.
This was not a regular activity, but I have not missed any chances to practice the switching activity by monitoring the movement of stock market. This shows how to invest in ULIP using your knowledge and common sense.
These actions and monitoring helped me to get a tripled fund value with the first ULIP and more than double fund value with the second ULIP.
Is investing in ULIP is an easy task?
“No, Not at all an easy process”.
As informed, investors in the ULIPs need to do lots of home works and do timely actions to bring the fund value up to a comfortable level.
They should have fare knowledge on the stock market behavior as well as the invested ULIP products in detail.
They must be able to tell about the advantages and disadvantages of the product.
ULIP investors must be aware about all the costs and charges associated with the products as well as all the free services and facilities available too. this will them to invest in ULIP successfully.
“Not only having the knowledge, but one should practice it without any fear or greed”.
My advice to the ULIP investors
“Discipline is one of the most important quality every investor should have”.
More than just investing  and forgetting money to any investment product, ULIP investments required investors intervention on time  and without any delay.
Once approached with due discipline, ULIPs are the best products to grow your investments to a great extend. But, you must know in and rounds of how to invest in ULIP products successfully.
* * * * * * * * *
Here are 2 scenarios, the consultancy services I have provided to some ULIP clients:
ULIP investing scenario 1
A client was investing regularly to the ULIP of a famous insurance company for long time. He has invested about 6 laks to the ULIP as installment of Rs. 1 Lakh in each year. However, at the end of 6th installment he checked the value and found it is only 4.25 lakhs! Confused on what to do to get at least the invested amount of 6 lakhs back, he contacted me for consultation.
I pitched into this and the first action was to learn all about the ULIP to that he invested the money. I have checked the funds list and found  number of funds associated with, but the money was parking to 2 equity and 1 debt fund.
There were no switching found for last 6 years! An average return from the fund to the invested amount was not more than 2% in every year! That is too low.
I have informed him to get the fund fact sheet from the company website and studied the details of all associated funds and its performances.
As it was the time, stock markets were its peak, my first action was to switch all the money to 2 best debt funds.
Next year when the stock market reached to the bottom level, I have informed him to switch the 85% money equally to two equity funds that suggested by me and keep 15% of the money to the debt fund itself. He had done so.
Monitoring process was going on along with switching of funds time to time for years and in the 12th year, when checked, he found his invested value of 6 lakhs grown up to 14 lakhs!
Investing scenario 2
I got a call from one of my friends requested to help on the ULIP investment he made on a ULIP  product of a reputed company. He was paying premium of 2 lakhs per year and have paid for two years. Minimum premium payment period for this policy was 5 years. After paying 4 lakhs as two premiums, he checked and found only 2.37 lakhs available in the account and the rest of money he lost.
When checked thoroughly, found that the capital invested on one equity and one debt fund equally.
When went through the fund details associated with the policy, I have found that the invested funds are low performing funds.
Because of the coronavirus related issues, the stock markets were in the bottom level.
I have given a suggestion with the name of 3 best performing equity funds associated with that ULIP product and informed to contact the agent immediately and switch the entire funds equally to those three funds.
He had done the same and when checked after a month, a total of 7% hike realized!
I suggested him to proceed with the same fund until the stock market reach to its next peak. So this is about how to invest in ULIP products successfully. Do not forget to read the ULIP investment checklist as an additional part of this read to get more and details ideas on how invest in ULIP products promptly and successfully.