Presentation on Unit Linked Insurance Plan

- Shri D.K.Mondal, Asst. Secretary (Marketing)

Central Office, Mumbai

UNIT LINKED INSURANCE PLAN

• A combination of the protection and savings of life insurance with the attractive prospect of investing in securities and capital market.

• The insurer accumulates the premium collected from policyholders and invests them on behalf of the policyholders.

UNIT LINKED INSURANCE PLAN (cont…..)

• An unit represents a proportionate share in the amount of the unit fund formed by collection of premium.

• The insurer deducts a small percentage of the premium as charges and the balance is applied to purchase units in the fund.

CASE STUDY

Age 30 yrs. , SA Rs.50,000

Yly. Premium Rs.5000

Mortality Charges - Rs.75.24 Total

Commission Charges - Rs.161.57 Charges

Admn. Charges - Rs.131.60 Rs.393.41

Accident Benefit - Rs. 25.00

CASE STUDY

Sale Price/ Offer Price

= Rs. 11.5991

No. of Units allotted = Premium - Total Charges

Current Offer Price

= 5000 - 393.41

11.5991

= 397.15 units

FUND MANAGEMENT

• The premiums collected under Unit Linked Plan are kept under a separate unit fund to adopt a more concerted and focused investment strategy.

• The insurer uses its specialised fund management skills.

Fund Management (Cont….)

• The insurer regularly carries out the valuation of unit funds in order to determine the value of units.

• Most insurers in India are doing so on weekly basis.

• Where the insurer invests the fund!

a) Almost the entire investment is done in debt and other equally safe instruments. or b) The major portion is invested in the more volatile equity instruments. or c) The insurer also offers a fund, which balances the two by investing in a judicious mix of debt and equity instruments.

Has the Policyholders a choice of selecting the type of investments ?

• The insurer invests the fund as per the choice of the investor.

• The unique feature is that the investor can control the use of invested fund.

How can the investor control the Fund?

• Insurers normally allow a switching of funds so that the investor can transfer his investment from one fund to another where he considers prospects to be better.

• A small charge may be levied for this service but it allows him to back his own judgement.

Additional Funds

• The investor can also deploy additional funds in Unit Linked Policies at any time.

• The key advantage is that the additional fund attract no charges other than the commission expense charges.

Withdrawal of Funds

• The investor can make partial or complete withdrawal of the units anytime after a brief lock in period.

• Surrendering during the initial years involves deduction of some percentage of unit value and this percentage, unlike the surrender value of traditional life insurance plans, is often a single digit figure and does not substantially diminish the cash value of units.

Table No. 140

BIMA PLUS - A PLAN THAT GIVES MORE

• Term Assurance with a fixed Term of 10 years, having the added advantage of reaping the fruits of capital market.

Features

• Minimum Age at entry : 12 Yrs. L.B.

• Maximum age at entry : 55 Yrs. N.B.

• Minimum S.A. :

• Rs.50,000 Regular

• Rs.20,000 Single

• Maximum Sum Assured : Rs.10,00,000

FEATURES (Cont…..)(A) Modes of Premium payment:

Annual : Rs.5000 to 1,00,000Half-Yly. : Rs.2,500 to 50,000Single : Rs.20,000 to Rs.10 lacs

(B) TERM : 10 Years (C) Option for Additional premium: (In multiples of Rs. 5000/-) Provision for Additional Premium irrespective of

MODE. Total of such premiums not to exceed Sum Assured, nor will it carry any risk cover

• A flat rate of 1.5%of Additional Premium will be deducted as charges

• Minimum Additional Premium - Rs.5000/-

EXAMPLE

• Age - 30 yrs., Secured Fund

S.A. - Rs.1 lac, Yly. Prem.- Rs.10000

Charges :

Mortality Charge - Rs.150.48

Comm. Expenses Charge - Rs.323.14

Admn. Expenses Charge - Rs.247.41

A.B. Premium - Rs. 50.00

Total Charges - Rs. 771.03

EXAMPLE (CONT…..)

Date of Purchase - 12.05.2003

• Sale Price / Officer Price = Rs.13.7873

No. of Units Allowed = 10000 - 771.03

13.7873

= 669.38 Units

Single premium policies

• In case of single premium Plan, Mortality, Accident and Expense charges will be recovered from Single Premium, in the first year for subsequent years level charges will be recovered by canceling units of EQ. VALUE at the start of each policy year.

Features (contd.)• Plan is offered with DGH. upto Rs.2 lacs even at age 55 yrs.

• Standard Age proof required

• Women under Cat. I & II will be insured under this plan

• Standard Lives can be insured.

• Accident benefit not available to minor lives. However, on attaining majority they can apply for inclusion

BENEFITS

•Maturity : Bid Value of Units as on DOM +5% Bonus (of S.A.) provided premium for all years are received in full.

DEATH BENEFIT:

• first six months : 30% of S.A. +• Second six months : 60% of S.A. +

After one year : Full S.A. +

• Bid value of Units on Date of Death• If policyholder dies in the 10th year, all premia under

the Plan being paid then maturity bonus of 5% of S.A. will also be payable in addition to above amount.

• On accidental death an additional SA will also be payable.

ACCIDENT BENEFIT

- Can be availed on payment of 0.50 Ps. Per

1000 S.A. for Yearly Mode

- Payment of 0.25 Ps. Per 1000 S.A. for Hly. Mode

- Not available for minors.

THIS PLAN ACCIDENT BENEFIT WILL NOT BE COUNTED FOR THE OVERALL A.B. LIMIT

LIQUIDITY

• Withdrawal of funds are allowed after one year from D.O.C.

• Upto Four years subject to deductions as per the table given in the next slide depending upon the no. of years for which premium is paid.

• After four years without deduction.

• Partial surrender upto 50% of units allowed after 3 yrs.

No. of years premium paid under regular premium

plan/No. of years elapsed from commencement under

a single premium plan.

Deduction as % of bid value of Fund Units allotted

Regular Premium Single Premium

1/2 year 16.0 -

1 year 10.0 4.0

1 1/2 years 7.0 3.5

2 years 6.0 3.0

2 1/2 years 5.0 2.5

3 years 4.5 2.0

3 1/2 years 4.0 1.5

4 years 3.0 1.0

Thereafter NIL NIL

These levels of penalties will apply at all times

FLEXIBILITYSWITCH OVER OF FUNDS

• Switch over of funds allowed twice during the term, with a gap of two years.

• Cost of switch over from one fund to another is 2% of current bid value of existing unit fund .

• Net amount so arrived will be utilised to allot units at the current offer price of the new fund.

Lapsation

• Grace Period of 30 days is allowed from the due date

• If renewal premium is not paid within days of grace, the policy will lapse and the insurance over both Life and Accident will not be available to the policyholder

• The policy shall however subsist as a paid up policy to the extent of Bid Value

REVIVAL

• A lapsed policy can be revived within one year from the due date of first unpaid premium.

• Revival can be done by paying upto date arrears of premium without any interest.

• In case of death during the year after revival, proportionate sum assured will be payable. Bid Value of Policyholders’ unit account on the date of death shall also be payable.

IMPORTANT:

AN EXPENSE CHARGE OF RS.100 P.A. WILL BE CHARGED FROM LAPSED POLICIES ON THE DATE OF LAPSATION AND THEREAFTR ON EVERY POLICY ANNIVERSARY IN THE FORM OF CANCELLATION OF UNITS OF EQUIVALENT VALUE.

Commission

• Half Yearly & Yearly Mode•First, Second & Third Year :

5%•Fourth Year to Ninth Year :

1%•Tenth Year : 2%

• SINGLE : 2%

FUND MANAGEMENT

• Policyholder’s can avail of LIC’s expertise in investment field.

• Fund managed separately by Chartered Accountants.

NAME OF FUND

EQUITYDEBT

INC.EQLIQUID

SECURED FUND

Not less than 10%

Not less than 80%

Not exceeding

20%

BALANCED FUND

Not less than 30%

Not less than 80%

Not exceeding

20%

RISK FUND Not less than 50%

Not less than 75%

Not exceeding

25%

SWITCHING OVER OF FUNDS: ALLOWED TWICE DURING THE TERM WITH A MINIMUM GAP OF TWO YEARS.

TYPE OF FUNDS

Valuation of Funds

•Net Asset Value of Units declared every Saturday, applicable from the following Monday

•For the initial three months from the launch of the Plan, the offer price was Rs.10/-

NET ASSET VALUE – NAVAS ON 31.05.2003

SALE/ OFFER PRICE

REPURCHASE PRICE

SECURED FUND 14.1348 13.4281

BALANCED FUND

13.2629 12.5998

RISK FUND 14.6899 13.9554

STEADY GROWTH OF NAV(SECURED FUND)

DATE SALE/ OFFERPRICE

REPURCHASEPRICE

31.05.2001 10.5632 10.0350

31.05.2002 12.1364 11.5296

31.05.2003 14.1348 13.4281

PRESENT BID VALUE

Age : 15 yrs. DOP : 01/06/2001

Single Premium : Rs. 2 lacs

Bid Value as on 02/06/03

Fund Type Bid Value IRR (%)

Secured Fund Rs.249768 11.75

Risk Fund Rs.258489 13.68

SURRENDER VALUE

Age : 15 yrs. DOP : 01/06/2001

Single Premium : Rs. 2 lacs

Surrender Value as on 02/06/03

Fund Type S.V. IRR (%)

Secured Fund Rs.242275 10.06

Risk Fund Rs.250734 11.97

INVESTMENT PORTFOLIOEQUITY SHARES

NAMES OF SOME COMPANIES

Reliance Industries ITC Ltd. Tata Steel/ Tata Tea ACC Ltd.

Tata Engineering Larsen & Toubro Ltd.

Mahindra & Mahindra Bajaj Auto Ltd.

HDFC Bank BSES

Hindustan Lever Glaxo

Bharat Heavy Elec. Ltd. Satyam Computers

Mahanagar Telephone Gujarat Ambuja

BIMA PLUS, IS DIFFERENT FROM TRADITIONAL PLANS

• Insurance Plus opportunity to invest in capital market.

• Choice of options of investment.

• Can change the options of investment

• Liquidity – Withdrawal facility after even one year.

• Partial withdrawal of 50% of units after 3 yrs.

BIMA PLUS, IS DIFFERENT FROM TRADITIONAL PLANS

Surrender Value is better than Traditional Plans

Flexibility - Can invest additional money as per choice in multiples of Rs.5000/- anytime.

Low Accident Benefit Premium @ 50 paise per Rs.1000/- SA

Insurance cover with no medical even at age 55 yrs.

And many more …..

PROSPECTIVE MARKET• Investor in Capital Market / Mutual Funds

• Employees Opting VRS

• Middle/ High Income Group

• Policyholders who receive SB & Maturity Claims

• NRIs

• Professional and Salaried Class