|Rediff India Abroad Home | All the sections|
Discuss | Email | Print | Get latest news on your desktop
Having second thoughts about your ULIP?
Personalfn.com | August 06, 2008 11:34 IST
The turbulence in equity markets has impacted more investors than one would have initially thought. The hardest hit are those who invest directly in the stock markets (i.e. direct equities). Then there are investors who aim at diluting the risk of investing directly in equities by routing their investments through mutual funds.
Expectedly, this category of investors has also felt the heat from the stock market turbulence. There is yet another category of investors to rival both these categories in terms of equity investments i.e. ULIP (unit linked insurance plan) investors.
If too many visitors haven't given a thought to the fact that ULIP investors have considerable investments in equities, it's largely because ULIPs are a mixture of insurance and investments, and sold under varying (marketing) guises depending on the situation.
However, there are investors who are fully aware of the fact that ULIPs are facing the heat as much as other equity-linked investments. There is more than a fair chance that these are the investors who have invested in ULIPs (especially in the aggressive option that invests heavily in equities) and often without truly appreciating the ULIPs' market-linked nature.
What are ULIPs
The story so far with ULIPs
Why ULIPs investors are shocked now
On the contrary, most ULIP investors unfortunately do not know what it is to be in a downturn and are very worried to see a huge hole in their ULIP investments. Add to this the fact that many investors have invested in ULIPs for their children's education (child ULIPs) or retirement (pension ULIPs) and one can better understand their anxiety.
It's not surprising therefore, to find investors complaining that their ULIPs have fallen to such levels that do not even cover the premiums paid so far. This is a result of the cumulative impact of high ULIP costs and market volatility.
What investors must do now
To find out more about the latter, investors would do well to study the portfolios of their ULIPs and find out if the investment style is in line with the stated mandate. Also, investors should compare the performance of their ULIPs with that of their benchmarks and similar offerings from other insurance companies. The insurance advisor/insurance company can help investors in procuring the required information. The fact remains that over the long-term, if carefully selected, equities can add considerably to the investor's portfolio. But for that he must be prepared for the intermittent volatility like the one at present.
Such investors must take a call on whether they should continue the ULIP. While the instinctive reaction could be to exit the ULIP, we recommend that they should not make a hasty decision. Instead, they must interact with the insurance advisor and explore all available options; also soliciting information about the surrender value will help in making a decision. The key lies in minimising the damage.
If you are wondering why the insurance advisor features prominently in both the options, the reasons are obvious. A life insurance policy can be tailor-made to the individual's needs. The individual's age, premium amount, tenure of policy among other details are unique to him.
The insurance advisor designs a policy based on these inputs and the individual opts for the policy based on his advisor's recommendation. The insurance advisor, as a 'representative' of the life insurance company, has a responsibility towards his client in terms of addressing his concerns with regards to the policy both before and after the sale.
Especially in the second case the advisor deserves to shoulder a part of the blame for having failed to educate the investor about the investment proposition offered by the ULIP. It's only fair that now, he plays his part in bailing out the investor.Your family's future depends on this. Read now
More Personal Finance
Email | Print | Get latest news on your desktop