LIC, until now offering endowment, money back and other life related policies, is now getting market savvy and very soon will be offering Unit linked insurance products. The soon to be named product will offer value appreciation, by investing in the Indian capital markets. Internationally the most popular form of savings is through the unit linked insurance route and LIC will be launching the product by the end of this month, after the approval from the IRDA.

At the moment a similar product is already being offered by UTI and is called ULIP (unit linked insurance plan) but sources in LIC say that they are working towards making their product more attractive than the ULIP, wherein the insurance component in the plan will be provided by none other than LIC itself. This product will invest in all kinds of financial instruments like Equities, Bonds etc and will be able to offer better returns to policy holders, apart from the risk cover.

In this form of savings, the policyholder's savings will be directly linked to the performance of the invested assets, Money back and Endowment Policies where the benefits are fixed or determined through the bonus mechanism. This form of savings is more transparent, which until now was not so in the other conventional policies, where the policy holders had little idea about how much money went for the risk cover and how much towards savings and now this ambiguity will be removed.

Incidentally LIC will remove a portion from the regular premium for actuarial costs, Administrative costs and Commission costs and the balance will be invested in the underlying assets according to the client's investment risk profile. The policy thus offered will be flexible from that offered by UTI, in the sense that there will be three savings options:

• 1) Risk Fund- premiums will be invested in Equities.
  2) Secured Fund- premiums will be invested in the Debt Market.
  3) Balanced Fund- premiums will be invested in both of the above.


 

The returns will not be assured, but an indicative returns will be provided based on historical data of the markets, however the Secured Fund could give an assured minimum guarantee of 8 per cent compounded annually.

The product will have a term of 10 years and the policyholder will be contributing the premiums for that period and at the end of the term the entire account value of the policy can be encashed. As regards to the Taxation part, nothing much is known as to how the long-term gains will be calculated. However since this product comes LIC and like many other policies of LIC, this new product may also be treated the same way, in the sense that the proceeds of the policy are not taxed.

As regards to insurance, the policy will pay in full on the death of the policy holder, one year after the start of the policy and in case of death within the first year of the policy run, 50 per cent of the sum assured will be paid.

All said and done, with more and more players entering the sector, investors will have more and more innovative products to choose from and this is just the beginning.

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