The Evolution Of ULIP Across The Ages In India
Table of Contents
ULIPs were introduced in India in 1971. It is an effective financial tool that offers guaranteed additional cover for the beneficiaries. These Unit Linked Insurance Plans are seen as low-cost vehicles for people willing to invest in market-linked products. With the ULIP plans, it is possible to enjoy the benefits of life insurance and make investments of one’s choice, apart from enjoying good returns, tax benefits, and shorter tenures.
Evolution of ULIP in India Over the Years
The Indian investment market has undergone a series of changes over the years. The Unit Linked Insurance Plans have also evolved since it was first launched in 1971. The ULIP plans have been improvised in the present era and come with many advanced features. Let us discuss the evolution of ULIPs here.
a. From Inception Till 2010
ULIPs were initially introduced as an effective financial tool with guaranteed additional cover. But they had high front-end charges and incurred other costs from agents and distributors. The tool also lacked transparency and incurred massive commissions. Thus, its acceptance was meagre.
b. Second Transition From 2010 to 2015
The IRDAI formulated the required guidelines to protect the interests of the policyholders. Its regulations focused on educating the customers about the significance of investing in ULIPs. It also brought down the charges and ensured that the policyholders understood the benefits of ULIPs. It capped the annualised charges of ULIPs at 2.25% for the first ten years and increased the lock-in period to five years. The minimum cover was increased to ensure that the appropriate insurance cover is available to protect the financial interest of the investors.
c. Entry of 3G ULIP Plans in 2015 – 2017
The real change in the ULIPs began in 2015 with the introduction of the online version of the plans. This addressed the issues about the transparency of the plan. The policy allocation charges underwent major changes. Fund management and mortality charges were capped between 1.25% and 1.45%.
d. 4G ULIPs – From 2017 Till Date
From the reputation of being a mis-sold product, the ULIPs have become transparent financial products in the market. Today, they have gained the reputation of becoming a value-packed investment tool for customers.
The ULIPs have grown smart, investor-friendly, transparent, and cost and tax efficient. The minimum lock-in period of the ULIPs has increased to 5 years. Their commissions have also been capped; thus, the new-age ULIPs have become a better financial product.
The Current State of ULIPs
With the help of Online ULIPs, this financial instrument has become very transparent, and all its information is accessible easily.
- The insurance companies also publish their factsheets to disclose their entire portfolios with stated expenses.
- The insurers have removed the policy administration and the premium allocation charges completely.
- Investors also get their mortality charges back after the plan matures.
- The FMS charges have also been capped at 1.35% PA.
- ULIP allows customers to choose their asset allocation between debt and equity.
All these changes to the ULIPs have made it a unique investment option with free life cover.
Also, the insurance companies do not levy charges for switching between the funds. After the tenure of five years, the policyholders can choose to withdraw their investments either fully or partially.
Bottom Line
With careful planning, ULIPs can create wealth that is good enough to fund a child’s higher education and other financial requirements, similar to retirement planning. For example, if the investor invests Rs. 15,000 per month for ten years and stays invested for 20 years. They would get interest at 8%, and with the power of compound interest, the principal will accumulate to Rs. 60 Lakhs and work wonders on their wealth creation strategy.
Also read: Why Should You Choose ULIP Over ELSS?
