Equity linked Insurance schemes

Equity linked Insurance schemes

Gone are day where the insurance scheme are black box which could be known only to the advisors or the insurance company.

Thanks to the Current market trend and opening up to the global competitions insurance has become available in the most simplified form.

With help of internet we can browse for the most competitive insurance providers and avail the best suitable solution of our need.

With the current technology break through one can even assess our returns from the investment on a day to day basis.

Web technology has assisted the above we can login into the insurance portal to check for the current status of the investments and opt to gain the best possible returns.

Almost all insurance company provide us equity linked schemes which ties up our policy premium into an market based units which is referred as NAV (net asset value).

Each unit is associated with an equivalent amount which can be redeemed after the lock in period.

Normally we were advised by our agents that we will get an amount on the maturity plus a bonus amount which was always a secret amount which is left to our imagination.

But the current technology allows us to watch our investments and choose the investment mode to minimize the impact of the market changes.

Distribution of the funds in different investment mode is based on the age of the policy holder and risk profile one can subjected to,

The below lists the different funds and associated risk profile.


Fund option Investment stratergy Risk Age
Liquid fund 100% in bank deposits and short term money market low >60
Bond fund 20% money market 80% govt. bonds Moderate 40-60
Equity
growth fund 20% bank deposit 80% equities Very high 30-40
Mid cap
fund 20% bank deposit and 80% equities (50%in madcap) Very high 20-30

The age specification is not any rigid rule but just an approach to mitigate the risk associated with the investment options.

One of the main question in each of the investors mind will the which insurer or the plan to opt for, Careful analysis should be done before investing the hard earned money.

Before choosing a plan care should be taken in finding out the charges associated with the insurance provider.

All the charges will be applied monthly by cancelling the units allocated with our investments.

Fund management charges will be applied and will be associated with the risk profile of the investment. Higher the risk higher will be the charges.

Below is illustration of the policy holder who has paid 2 premiums and associated units for each premium are based on the that days unit value and his current unit holding after the charges which eats up his allocated units.
Premium Premium Invested Unit price at Allocated Charges mortality + year Amount Amount the time of units service ess
allocation
1 10,000 3000 21.3 140.7 -4 units
2 10,000 9800 28.2 347.5

TOTAL 488.2
After Mortality + service tax charges
Charges applied monthly for the first
Year the current Units will be 484.6

Switching charges will be applied only if the cross the free switch numbers.

Allocation charges is the one where the investor will have the option to choose but normally the insurance agent may not reveal as his commission is associated with the allocation charges. So investor should check for the different option available before signing the application.

One of the insurers provides a plan in two modes

Plan -1
Year allocation charges
1 30% 70%
2 98% 2%
3 99% 1%
Plan -2
Year allocation charges
1 60% 40%
2 80% 20%
3 99% 1%

Also, we have to inquire the basic minimum amount which, we have to commit for the plan rest of the amount can be given as top up which does not attract the allocation charges but depends on the insurer.

The basic risk associated with any unit linked plan is the returns are always not assured
So consider the amount of premium invested and other money guaranty plans provided by the market admitted company.

Benefits will be much discussed in each of the insurers brochure.

happy investing !!!

With regards
Kannan.g