http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/IRDA_to_make_ULIPS_more_affordable/articleshow/3510476.cms

ULIPs were sold like hot cakes in the Indian markets till the downturn in the equities markets recently. The insurance companies are allowed to pay a maximum commission of 40 per cent of the first year premium, 7.5 per cent in the second year and 5 per cent thereafter. But after the fall in equity market since the beginning of this year, ULIP sales have gone down drastically. Looking at this scenario, the Insurance Regulatory & Development Authority (IRDA) has finally decided to reduce the commission rates to make the product more affordable and more attractive.

The step taken is very much in interest of the investors, but IRDA realized the same after the sales declined hugely. If the markets were not that choppy, would the IRDA have thought of the interest of the investors? Highly unlikely.

Does the regulator think about investors only when there is a crisis?

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/UTI_may_stop_Ulip_sale_after_cos_agree_to_keep_MFs_out/articleshow/3495777.cms

Unit linked insurance plans (ULIPs) are today being sold both by life insurance companies as well as mutual funds. ULIPs offer insurance and investment in one product as compared to general products sold by mutual funds that offers only the investment avenue.

At mutual funds, these policies are being sold by agents who do not have the license to sell insurance. This leads to miss-selling as they lack in the product knowledge on insurance, as they haven’t passed the required IRDA exam. (Asset management company folk have to pass the AMFI exam, not the IRDA one). So, the Life Insurance Council has opposed mutual fund companies selling ULIPs. The group selling of ULIP and mutual funds is going against life insurance companies’ business.

The protest by the Life Insurance Council against this practice will protect customer interest and will help the life insurance companies in respect of product development.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/ Life_cos_say_cover_sale_by_MFs_affect_distribution_infrastructure/rssarticleshow/3405002.cms
The above story is about life insurance companies expressing concern on sale of insurance cover by mutual funds.

The insurance industry is strongly opposing this move. Life Insurance Council chief executive SB Mathur said: “Insurance companies are spending hundreds of crores on training agents to sell insurance. If mutual fund distributors are allowed to sell insurance without adequate training, the sanctity of the training would be lost.”

Mr SB Mathur’s self-righteous indignation is pathetic as well as misleading.

Even after spending hundreds of crores on product training, insurance agents are not selling the insurance products in the right spirit. Today unit-linked plans (ULIP) are the hottest product in the market. The reason is not because it is the best. It is one of the most miss-sold products in the market due to the high commissions offered to agents who sell ULIPs. Many cases have been found out were people go to banks to buy mutual funds and end up taking a ULIP Plan in the name of mutual funds. Insurance products are not marketed; they are sold.

Unit Linked Insurance Products popularly known as ULIPs are the most selling product in the Insurance market. Almost half of the Indian public invests in to ULIPs. They sell like hot cakes in the Indian markets with their promise of giving market linked returns combined with the benefits of insuring your life in case of any unforeseen events.

To describe ULIPs further, they have four or more types of funds they invest into. The investor has an option to invest into which ever fund he wants to invest into. This depends completely on his risk taking ability and time horizon of investments. The most risk taking individual can opt for an option which allows him to take 100 per cent exposure into the equities market, where as the most risk averse investor also has an option of putting the entire amount into the safer instruments. The key issue over here is to match the right asset allocation to the right risk taking ability in accordance with the time horizon of investment.

Along with this feature of ULIPs, you also get an option of switching in between funds. Generally you gets four to six free switches per annum. After you exhaust the free switches you have to pay per switches. Say you chose a fund with 100 per cent allocation towards equities. You have been invested into this fund for almost a year now with the equity markets performing amazingly well. Now you think you have made enough and you think you prefer shifting a part or whole of your corpus towards a less risky portfolio. You have an option in ULIPs where you can choose to move your portfolio into 60 per cent of equities and 40 per cent of debt.

Does the above give you an impression that I am asking you to time the markets? No, because I am a firm believer that no one can perfectly time the markets. The strategy to be applied here is to do a goal planning in which you state that this year you want a return of say 20 per cent per annum. Now as soon as your portfolio in to equities shows a return of 20 per cent even if it is only two months from the date of investment, you should shift at least 50 per cent of your portfolio into debt instruments by using your switch options.

For deciding when to switch, you should keep the following in mind:

• Goal Planning: The entire process is how you manage your finances depends on the goals you have in your life in terms of money needed for the same and what rate of return you have to get to achieve your goals. If you have already collected enough money to reach your goals then you should switch your money in to less riskier options.

• Asset Allocation: This is probably the most important thing to be kept in mind when you plan your finances for the future. The key is to get the expected returns by striking the right asset allocation and diversifying your portfolio. Any time your desired asset allocation changes by huge margins, you should use your switch options to match it over again.

• Risk Appetite: The process of goal planning and asset allocation depends on the risk appetite you have. You should always try to analyze how much risk you can afford to take. In case your risk appetite says an asset allocation of 80 per cent in equities and 20 per cent in debt, then you should never invest in to 100 per cent equity fund. You should switch as soon as your equity portfolio grows out of proportion in comparison to the debt part.

• Time Horizon: Time horizon is very important. The closer you get towards reaching you goal you should keep moving your portfolio in to safer options rather than too much of equities.

Abhishek Kumar Singh is a Certified Financial Planner working at ApnaPaisa Services Pvt. Limited.