Unit Linked Insurance Plans or ULIPs refer to a category of goal-based financial solutions that provide the perfect combination of protection and savings to an investor. They are managed in accordance with your personalized needs, thereby offering unprecedented transparency and flexibility to an investor. They offer insurance protection plus the benefit of wealth creation opportunities, offering both money and safety. That’s not all. The residual portions of ULIPs are invested in bonds or stocks, and the value of your investments alters according to the performance of the underlying fund chosen by you. If you have made an investment in ULIPs and have let them lapse, then you will be offered more time to resuscitate its policies and earn better returns for the period during which it was discontinued. As per the new rules and regulations, insurers are allowed to review its policies, which in the normal course would have been cancelled. However, they are required to dole out more money to the insured.
The Insurance Regulatory and Development Authority (IRDA) recently announced insurers of their new regulations, stating that policyholders of ULIPs will be able to refresh policies that were discontinued, within a period of 2 years from the date of which it was discontinued. It is however, important that this date should not succeed the expiry date of the lock-in period. It is important to insurers to also ensure that they provide a minimum return that is equivalent to the savings deposit held by the State Bank of India, which currently stands at 4%. The policy has to offer these returns only after the insurance company deducts its charges for fund management of the scheme. The Reserve Bank of India (RBI) has not just fixed a limit for returns from the discontinued fund; it has also stated that the expenses for fund management shall not exceed 0.5%, thereby making it profitable for policyholders if the market performs exceedingly well. While these new norms by the RBI will give these policies a new lease of life, it will benefit both the policyholders as well as insurance companies, as policy revival is always beneficial to policyholders, while fund management charges will serve profitable to insurance companies.
Many insurers are of the opinion that the reason behind the discontinuance of a few policyholders is a fall in the performance of the markets. Many policyholders complain that their savings fell massively with a fall in the net asset value of their investment. Also, since the charges of life-insurance are mostly front-ended, they tend to lose out on a lot of long-term benefits. It is thus beneficial to policyholders only if they continue the policy for the full term, as they have already made payments towards the bulk of charges in the first year. The IRDA has revived the life insurance industry with its new regulations at a time when the industry faced its largest downturn.
However, make sure that you invest an average portion into these assets, since a major part of that investment depends on markets’ behavior, investing a lot can prove to be fatal to your portfolio. In instances where the markets are breaking sky high records you as an investor are benefited. However, in the eventuality of a downturn, you lose if you have depended entirely on this asset. Loans, Car loans etc may be your viable options to finance your mere requirements. In order to avoid any such financial burdens, make sure that you invest in only a maximum of 2 Ulips so that your funds can be diverted into much more profitable and prospects like the MFs using the SIPs where your returns can enjoy a healthy growth.