Online ULIPs

Life insurers like HDFC Life, Aviva India and Bajaj Allianz have started focussing heavily on the online platform for selling ULIPS (unit-linked insurance plan), promoting them as low-cost products, in the last few months.These policies are cheaper than their offline counterparts, as the savings made on agents’ commissions are passed on to policyholders in the form of lower premium allocation charges.

Insurers are launching these online Ulips to counter distributors’ reluctance to promote ULIPS . Over the last four years (post September 2010, when IRDA imposed a cap on ULIP charges), many agents and brokers have stopped selling ULIPS.

While the broad structure of a lowcost ULIP sold online is similar to a regular ULIP, slashing of premium allocation charges is the key differentiating feature. HDFC Life’s online ULIP has completely done away with allocation charges.It only charges fund management fee and a risk premium for mortality cover and on this aspect, directly competes with ELSS Mutual funds. The entire premium paid by the customer gets invested. Aviva’s product levies a premium allocation fee of 4-5%, compared to its offline counterpart that charges 8-9%. Bajaj Allianz’s online ULIP levies premium allocation charges ranging from 0-5.5% in the first five years, depending on the premium amount and year.

Also, mortality charges are generally lower for online insurance policies as insurance-seekers in urban areas with access to Internet are seen as financially-savvy . Disclosures are also better as policyholders tend to complete the form and answer questions themselves rather than leaving it to the agent.

The product can be bought entirely online. Policyholders do not have to undergo medical tests. It is sold to people who are under 50 and they have to submit a declaration of good health. Identity proofs can be uploaded online.

The lower charge structure of these ULIPS is a huge positive. Also, Ulips are more tax-friendly.Financial planners always recommend shifting to debt from equity as goal time lines approach and tax-exemption for ULIP proceeds come in handy here. Redemption in debt mutual funds attracts capital gains tax, whereas a ULIP holder can switch between debt and equity without any tax implications.

However, unlike a mutual fund, where exit barriers are relatively lower, these ULIPS come with a lock-in period of five years. No withdrawal is allowed during the period. Moreover, you cannot switch to another product if your fund option underperforms. You will have to stick with the product for at least five years even if you are not satisfied.In contrast, it is easier to switch from one mutual fund to another if your scheme yields poor returns.

So if the booming stock markets has you itching to invest in stocks, look at these ULIPS if you can stay invested for over ten years and are looking for a tax efficient route.