Investment Plans

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  • What is an Investment Insurance Plan?

    We all have known insurance since our childhood days. This is only getting bigger day by day. Almost everyone takes insurance to defend against uncertainty in life. Investment, on the other hand, is done to protect our future and build wealth for our future needs. Hence most of the financially aware people buy insurance to handle uncertainties in life as well as invest to build wealth for the future.

    In last few years, asset management companies have launched products that combine insurance and investment to provide the twin benefit of security against uncertainty as well as wealth building. These products are investment insurance plan.

    The most common one is ULIP or Unit Linked Insurance Plan. It is another matter that this product became notorious for miss-selling. The regulators had to intervene. Today, ULIPs are much better product than its earlier avatar.

    Investment insurance products

    Investment insurance products are financial assets that provide insurance and investment. For example, these products offer a sum assured in case of any eventuality. Moreover, they also invest a part of the premium in market linked securities to take advantage of market movement.

    How do investment insurance products work?

    So how do investment insurance products manage to do both?

    Coverage and growth: The premium that buyers pay is used to provide both of the aspects of investment and insurance. A portion of your premium goes towards providing the insured the necessary insurance coverage while the remaining portion is invested in market securities such as equities and debts. This is similar to mutual funds where the fund invests a pool of money collected from various investors in equities and debts in a specified proportion depending on the nature of the fund.

    Balance risk and returns: Investment in market securities offers various options based on risks and returns. Hence the buyer of investment insurance products has many options to choose from based on his or her individual risk appetite. Since debts are fixed income securities, they provide the stability of returns. Equities, on the other hand, do not promise any fixed returns but have the potential to give high returns over long term. Hence a combination of debt and equity provides much needed balance between the risk and returns.

    Choose what you want: Buyers have option to select the proportion of debts and equities where the money is going to be invested under his plan. If the buyer has long term investment horizon and is not risk-averse, he or she may select a plan with larger portion of equities. Similarly a buyer of low risk appetite may select a plan where the equity portion is lower and debt portion is higher. A person with medium risk appetite may choose a balance plan with relevant proportion of equities and debts.

    Important points for investors

    • Investment insurance products are financial products like any other. The suitability of this product depends on individuals’ needs. The product is not good or bad per se.
    • Every investment comes at a price. This price is known as brokerage fee, upfront and trail commission, and expense ratio. Hence investment insurance too has few expenses that are charged from customers’ premiums. Insurance products are known for their annual charges (not the premium) that are subtracted from your premium to pay the agent. This is an important aspect. Look at these rates carefully and compare the fee with other products to decide the right one for you.
    • Usually the charges in the first year I higher with gradual decrease every year till it get to a minimum amount below which the rates cannot decrease. Check for the commission because this is going to go from your investment.
    • Finally, investment insurance plan is little complex compared to regular insurance products or mutual funds. Look at all the important aspects such as sum assured, equity and debt proportion of your investment plan, and withdrawal rules, and the maturity amount before buying it.

    Some investors may want to separate investment from insurance. Hence they buy insurance to cover them and invest in equities, debts, gold, real estate, mutual funds etc. to cover for their future needs. Some may prefer investment insurance product because of ease of managing it.

    Finally, the choice is yours!

    Why should I buy Investment Insurance plan

    Investment and insurance are two different things, or so goes traditional wisdom. Hence, they should be treated separately. If so, why do companies launch investment insurance plans, which essentially combine investment and insurance in one product?

    Here we will discuss the four major benefits of investment insurance plan. This will help you decide whether it meets your needs.

    1. It is easier to manage track and update

    Since insurance and investment are bundled into one product, it is much easier to manage. In case of separate insurance and investment products, you have to manage them separately. Naturally, this requires spending more time on your investments.

    2. It serves the dual purpose of insurance and investment

    Investment insurance plan serves the twin purpose for any individual, namely insurance and investment. This not only provides insurance cover to the buyer but also invests in market-linked securities to take advantage of market movements and hence build wealth in the long run. This is achieved by dividing your premium into two parts. One portion goes towards purchasing insurance cover. This part is invested in risk-free or low risk assets so that they do not take unnecessary risk with insurance portion of the money. Remember that this insurance part has to provide you security in case of any eventuality. The other portion goes into investment in market securities such as equities and debt. The portion in market securities provides an avenue for wealth building for the long term.

    3. Insurance provides many choices for investment

    Investment insurance plans provide immense choice and flexibility to buyers. Dedicated plans like child plan, pension plan, etc takes care of your specific financial goals like children’s education and marriage expenses, retirement income needs, etc. There are various investment plans available based on proportion of equities and debt. A higher portion of equities in any plan makes the investment riskier but also increases the possibility of higher returns in the long run. Similarly, a higher proportion of debt reduces risk but also provides average returns on investment.

    Hence, buyers have many choices to choose from based on their risk appetite and investment horizon. A buyer with higher risk appetite and longer investment horizon may opt for investment into a scheme with higher proportion of equity and very low proportion of debt. A person with low risk appetite may opt for a scheme with higher proportion of debt.

    4. It provides flexibility to change the scheme

    The plan also provides flexibility to change your investment schemes in future if you find your chosen scheme is not suitable for you or did not meet your expectation. Hence, you don’t have to get stuck with a bad investment.

    For example, if you choose a plan for higher proportion of equities and found out later that you cannot manage the risk associated with it, you can switch over to a scheme with lower proportion of equities. This will be under the same investment insurance policy. If, however, you find that your choice of scheme with higher proportion of debt has not been able to take advantage of market rally in equities, you can switch over to a scheme with higher proportion of equity. In case of investments in mutual funds, if you have to change your investment scheme, you have to sell the current investment and invest in a new mutual fund.

    Finally, investment insurance products have grown in popularity in the last few years. The ease of operation, one product for investment and insurance, and flexibility with immense options for investment have made the product increasingly popular among investors. However, before you buy the product, carefully study the annual fee, sum assured, and investment schemes available.

    How does an Investment plan help at different stages of life

    From birth to death, our life passes through various stages, which has its own charm and challenges. The needs and responsibilities at each stage are unique and hence it requires various kinds of investment plans for a better lifestyle.

    While at some stages we are more concerned about ourselves, at other stages we worry about our dependants – in either of the cases strong financials can only help us sail smoothly through the rough patches of life.

    And to remain financially sound, proper investment according to life stages is very crucial.

    Why should one invest differently at different stages of life?

    Just think of you as a kid and then as a grown-up individual. Do you act the same way as you used to as a kid? As time progresses, our lifestyle changes, surroundings alter and to keep pace with this changing world. And to meet different needs, our financial capability should remain sound by virtue of proper investments.

    Various factors impacting our investment

    • Income matters – unless and until there’s enough cash flowing in, one won’t be able to invest
    • Age matters – risk appetite is inversely proportional to age. At younger age, one tends to take more risk with their investment portfolio.
    • Savings matters – start saving from day one of your earning, no matter how small it is.
    • Market matters – market trends and performances do matter and has direct or indirect impact on investments.

    Analyse your life stage

    It is imperative to analyse your life stage and your requirements. Set your priorities right and start investing accordingly. There are different financial products to aid your requirement in wealth accumulation and securing future for you and your dependants.

    Stage 1 : Unmarried young professional

    This stage of life is characterised by factors like – no financial dependency, high risk appetite, and long term investment, no major financial liabilities (home or car). Being a fresher without much work experience even if the earnings are low, start saving with smaller proportion and automatically it will grow into a bigger corpus over a period in time slowly and steadily.

    Investment avenues to be explored at this stages are mainly equities and term insurances. As the time is on your side, equity is the best option to generate high returns in the long run. Invest in ULIPs, which would give you the option to manage funds between equity and debt. Over and above its advisable to start early investment and enjoy the power of compounding. |

    Stage 2 : Married couple

    This stage of life is characterised by factors like – increase in expenses, addition of financial dependents, medium risk with average return, more into liquidity in order to meet expenses. It’s time to start creating a roadmap for financial planning and defining your goals. It can include buying a house or car, child planning etc.

    With increase in financial liabilities, the investment instruments to be sought after are building a robust insurance cover, build a contingency fund and make investments in traditional options like FD, PPF, NSC and SCSS to generate fixed returns. These may be insufficient to beat the inflation rate in the long run though. Invest in a term insurance to protect your family against life’s uncertainties and in case you already have one, enhance the coverage amount to ensure it is in sync with your current liabilities. You can go for a health insurance with family floater to cover your dependants too. Mutual funds are also a safe bet with a long term perspective.

    Step 3 : Being parents

    In this stage, financial dependents increases further more. Some of the other characteristics are high expense and less savings, low risk appetite with low returns, future planning for kids and well-being of family.

    Opt for a child ULIP to finance growing needs of the child and create a corpus to fund his education and career goals. Enhance the insurance cover that you already have. Invest in mmovable assets that can also help your kids later. Buy a good wealth plan that would help you various needs like child’s education, vacation planning, and bigger house. Availing a unit-linked pension plan won’t be a bad idea either.

    Step 4 : Retirement and golden years

    At the fag end of your life, reap all your investments, should focus on liquidity for daily expenses without any source of income. Risk appetite being very low, short term investments can be recommended.

    Create a separate contingency fund only for health emergencies, since old ages are vulnerable to illness. Rely on pension plans, SCSS and bank FDs for steady cash flow. However, make sure to be debt free before you retire, that will ease the burden and help you to lead a smooth retirement life.

    Best features which an ideal Investment plan must have

    The idea of investment is to create wealth for yourself as well as for your dependant, so that in days to come, there’s no financial hardship that one has to experience. Life is not all the same and there are ups and downs, a sound investment will shield those bumpy rides of life and provide you a secure future.

    Depending on your current lifestyle and to have a better future, it is imperative to have additional cash flow coming in that will support your family in your absence – be it child’s future, loan repayment, health issues. In such cases, the invested amount builds a corpus over a period in time to help you lead a stress free life. An ideal investment plan must comprehensively look into the following aspects.

    • Generate fixed regular income
    • Provide funds in emergency
    • Returns shall beat inflation
    • Should have satisfactory liquidity

    Above all these, an ideal investment plan should have coverage to provide protection agains uncertainties and unforeseen situations.

    Features of Ideal Investment Plans

    Investment Plans helps one to systematically build a corpus of funds to be available at emergency. However, the basic requirement is the rate of returns over the term of investments.

    Disciplined Investment: There are plans that bring in the desired discipline to invest with small yet regular sum, rather than a lump sum amount.

    Hassle free Investment: Linking investment portfolio with bank account makes it secure and hassle free, with standing instruction given to the bank, regular investment gets done automatically. KYC compliance is a must in this case

    Compounding Investment: The power of compounding helps to gain big, and hence one who starts early benefits much better way than late starters. Also return of one investment can go in as an investment to another better and bigger plan.

    Easy Investment: Mostly online plans that gets issued quickly with less paper work. Most effective and convenient way to remain invested.

    Types of Investment Plans

    Besides elevating income, a well thought investment plan can help you channelize your savings into the most apt instrument for better returns, thereby building a corpus for financial security.

    • Life Insurance policies – This offers dual benefit of life protection as well as investment for building a corpus. Depending upon the risk appetite and financial commitments, one can opt for traditional term plans, which offers stability and guaranteed returns, or a unit-linked policy with high returns and elevated level of risk.
    • Equities – These are company security that can be traded in stock market or via IPO subscription. Investing in blue chip companies for a long term can generate high return and handsome bonuses.
    • Bonds – These are mostly fixed income instruments issued with the aim of raising capital for a specific motive. They can either be issued by Government bodies or private entities, the ones issued by government comes with low risks and fair return.
    • ULIPs – Completely dependent on market performances, these policies can be invested in a variety of funds including equity, debt and hybrid, according to the risk taking ability
    • Mutual Funds – The most cost efficient and highly diversified means of investment. Innumerable number of MFs is available to choose from, depending on risk and return probabilities.
    • Bank Deposits : This is the safest means of securing steady return. The returns are low but stable.

    Top 10 online Investment Insurance Plans in India

    Life insurance has evolved from being primarily a protection instrument to an instrument offering an investment option. Here is a look at the top online investment insurance plans that offer a dual benefit of investment cum protection offerings.

    1: SBI Life Smart Wealth Assure

    SBI Life Smart Wealth Assure plan is a popular unit linked plan offering both protection as well as investment instrument for the policyholder. The plan offers the option to choose from a mix of funds namely bond fund and equity fund offering market linked returns. Partial withdrawals are allowed after the 5th policy year along with a benefit of customizing the accidental death benefit option. SBI Life Smart Wealth Assure plan is a single premium plan where premium is invested in funds after deducting the premium allocation charges.

    https://www.sbilife.co.in/en/individual-life-insurance/ulip/smart-wealth-assure

    2: PNB Metlife Smart Platinum

    PNB MetLife Smart Platinum is a unit-linked insurance plan. The plan allows for attractive investment returns as it offers the policyholder to choose from 6 fund options with varying risks. PNB MetLife Smart Platinum plan offers partial withdrawal options from the 5th year offering insurance cover up to 99 years. The maturity benefit is equal to the total fund value on maturity date.

    https://www.pnbmetlife.com/insurance-plans/wealth/metlife-smart-platinum.html#parentHorizontalTab|parentHorizontalTab1

    3: Bajaj Allianz Future Gain Plan

    Bajaj Allianz Future Gain is a popular unit linked endowment plan offering the policyholder a choice of two investment portfolio strategies. As a market linked plan, Bajaj Allianz Future Gain gives the policyholder to switch between a choice of seven funds with an option for partial withdrawals and decreasing of Sum Assured. Maturity benefit on offer under the plan is the regular premium fund value plus top up premium fund value as on the maturity date.

    https://www.bajajallianzlife.com/ulip/future-gain.jsp

    4: Aegon Life iMaximise Secure Plan

    Aegon Life iMaximise Secure Plan is a unit linked plan offering insurance cum market linked returns for the policyholders. The policy allows the option to choose from 6 unit linked funds as per the investment needs of the policyholder. The plan pays out an amount equal to the annualized premium to the nominee as income benefit till maturity in case of unfortunate death of the Life Assured.

    https://www.aegonlife.com/insurance-plans/ulips/aegon-life-imaximize-insurance-plan

    5: ICICI Pru Life Time Classic

    ICICI Pru Life Time Classic is a new unit linked plan that offers the policyholder extensive wealth creating options while safeguarding the protective component. The plan offers the policyholder the option of choosing from 5 Equity funds, 2 Debt funds and 2 balanced funds to get better returns for each individual. With 4 free switches in a policy year, the ICICI Pru Life Time Classic plan offers loyalty additions, top up facility and flexible premium payment options.

    https://www.iciciprulife.com/ulip-plans/icici-ulip-lifetime-classic-plan.html

    6: SBI Life e-Wealth Plan

    SBI Life e-Wealth Plan offers market linked returns making it one of the popular unit linked insurance cum investment plans. SBI Life e-Wealth Plan comes with two plan options of Growth and Balanced with nominal premium payments without any allocation charge. The plan also allows for partial withdrawals from 6th policy year. For policyholders without having any proactive financial insights, the plan offers an investment management through automatic asset allocation.

    https://www.sbilife.co.in/en/online-insurance-plans/ewealth-insurance

    7: HDFC Life Pro Growth Plus

    HDFC Life ProGrowth Plus is a well known and popular savings-cum-insurance plan. As a unit linked plan HDFC Life ProGrowth Plus allows the freedom for policyholder to choose from various funds like income fund, balanced fund, blue chip fund and opportunities fund to make the most of market oriented returns. The plan comes with flexibility to choose sum assured and an EMI option for HDFC Bank Credit Card holder. The plan offers both maturity and death benefits with the options of changing fund choices by moving unlimited times from one fund to the other.

    https://www.hdfclife.com/savings-investment-plans/progrowth-plus-ulip-plan

    8: Tata AIA Wealth Maxima

    Tata AIA Wealth Maxima is a unit linked plan tailor made to offer a perfect communion of protection and investment components. The plan allows the option of premium payments for one year and insurance cover for life. The policyholder can choose from 11 fund options for enhanced investment opportunities. There is also a choice of enhanced systematic money allocation and regular transfer investment portfolio strategy. Tata AIA Wealth Maxima also offers tax benefits u/s 80C and 10 (10D) of the Income Tax Act, 1961

    http://tataaia.com/pdf/wealth-solutions/tata_aia_life_insurance_wealth-maxima_brochure.pdf

    9: Max Life Fast Track Growth Fund

    Max Life Fast Track Growth Fund is a unit linked plan offering good investment options with its market linked returns. The Max Life Fast Track Growth Fund allows option to choose single pay or 5 pay for 10 years policy term or regular pay for 20 years policy term as per your need. The plan offers policyholder to choose from 5 fund options as per the underlying investment risk appetite. The plan comes with two inbuilt strategies of Systematic Transfer Plan and Dynamic Fund Allocation to safeguard against market volatilities.

    https://www.maxlifeinsurance.com/Plans/insurance-plans/growth/fast-track-super.aspx

    10: Kotak Platinum Plan

    Kotak Platinum Plan is an ideal insurance cum investment product offering the dual benefits of adequate protection and market linked returns. Kotak Platinum Plan allows policyholders to choose between 3 unique investment strategies to ensure maximum returns. The maturity benefit offered in the Kotak Platinum Plan is the fund value on maturity date along with any fund value in top up accounts.

    https://insurance.kotak.com/insurance-plans/savings-and-investments-plans/kotak-platinum-plan

    Online Investment insurance plans at a glance

    Investment cum Insurance Plan Entry Age Minimum Premium Minimum Basic Sum Assured Premium Allocation Charges Free Switches on offer Policy Term Premium Payment Term (PPT)
    SBI Life Smart Wealth Assure 8-65 years for base plan Rs. 50,000 Age below 45: 1.25 x Single Premium Age above 45: 1.10 x Single Premium 3% of Single Premium 2 free switches in one year 10-30 years Single premium policy
    PNB Metlife Smart Platinum 7-70 years Rs 30,000 for Annual mode Rs 60,000 for other modes -- 1% to 1.25% as per fund option 4 -- 5 pay/ 10pay/ entire term of the policy
    Bajaj Allianz Future Gain 1-60 years Yearly: Rs. 25,000 Half yearly: Rs. 12,500 Less than 45 years: 10 times Annualized Premium or 0.5 * Policy term * Annualized Premium Greater than or equal to 45 years: 7 times Annualized Premium or 0.25 * Policy term * Annualized Premium 0-1.5 % unlimited 10 years 5-30 years
    Aegon Life iMaximise Secure Plan Benefit option 1: 7-55 years Benefit option 2: 18-50 years Option 1: For Premium Payment Term: 5 / 7 years: Rs. 36,000 For other Premium Payment Terms: Rs. 24,000 Option 2: Rs: 24,000 (Entry Age < 45 years) Rs: 36,000 (Entry Age >= 45 years) For entry age below 45 years Higher of the Following:
    • 10 times the Annualized Premium
    • 0.5 x Policy Term x Annualized Premium For entry age equal to or above 45 years Higher of the Following:
    • 7 times the Annualized Premium
    • 0.25 x Policy Term x Annualized Premium
    Nil 4 15,20, 25 years Option 1: 5,7,10, 15, equal to policy term Option 2: 10,15, equal to policy term
    ICICI Pru Life Time Classic 0-65 years Single Pay: 50,000 Limited Pay and Regular Pay:30,000 0 - 38 Years: 1.25 X Single Premium 39 Years and above: 1.25 X Single Premium 3-4% 4 5 years, 10 years, single pay --
    SBI Life e-Wealth Plan 18-50 years Yearly: Rs. 10,000 Monthly: Rs. 1000 10 times Annualized Premium Nil -- 10-20 years Regular
    HDFC Life Pro Growth Plus 14-65 years Annual: Rs. 24,000 Half Yearly: Rs. 10,000 Monthly: Rs. 2500 Age less than 45 years: Higher of 10 x annualized premium Age more than 45 years: Higher of 7 x annualized premium 2.5% of annual premium Unlimited 10-30 years 10-30 years
    Tata AIA Wealth Maxima 0-60 years Single Pay: Rs. 5,00,000 per annum Limited Pay: Rs. 2,50,000 per annum For Single Pay: 1.25 times the Single Premium For Limited Pay: Higher of (10 * AP) OR (0.5*Policy Term* AP ) 3% 12 100 minus Issue age 7/8/9/10/15 and 20 years
    Max Life Fast Track Growth Fund 18-60 years Single Pay: Rs. 1,00,000 5 Pay: Rs. 50,000 Regular Pay: Rs. 25,000 Single Pay: Rs. 125,000 5 Pay: Rs. 500,000 Regular Pay: Rs. 250,000 0-4% 12 10 years for Single Pay/5 Pay and 20 years for Regular Pay Single Pay/ 5 years (5 Pay) / 20 years (Regular Pay)
    Kotak Platinum Plan 0 to 65 years Minimum: Annual: 99,000, Half-yearly: 49,500, Quarterly: 24,750, Monthly: 8,250 Less than 45 years: Higher of 10 times AP or 0.5* Policy Term * AP 45-60 years: Higher of 7 times AP or 0.25* Policy Term * AP 61 years and above: 7 times AP 1.5% to 5% 12 10 to 30 years Regular: Equal to the policy term. Limited: 5-year payment with policy term of 10 years | 10-year payment with policy term of 15 to 30 years

  • Q: What is a unit linked insurance plan (ULIP)?

    Q: What are the various types of ULIPs on offer in the market today?

    Q: Why should one consider investment in ULIPs?

    Q: How are ULIPs different from endowment plans?

    Q: Are ULIPs high risk investments?

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