Endowment plans Q1. What is the difference between endowment plans and term plans? Term insurance plan is a plan with pure risk cover whereas, an endowment plan is a combination of insurance and investment. The main difference between the two is in terms of the benefit derived from the plans. In case of term insurance plans, only death benefit is available i.e. if the life insured dies within the term of the policy then a lump sum will be paid to the nominees. And if the life insured survives till the maturity of the policy then nothing is payable by the insurer. And in case of endowment plans both maturity and death benefits are available. If the policyholder dies within the term of the policy then the nominees will get a lump sum by the insurance company. And if the policyholder survives till the maturity of the policy, he will be paid the sum assured along with the accrued bonus (if any). Q2. What is meant by a paid-up endowment policy? If you are unhappy with your endowment policy and wish to discontinue it then, there is an option where you can convert your endowment policy into a paid up endowment policy. This option is available only when you have paid the premium for a minimum period of 3 years. Your policy will still continue till it reaches maturity but the sum assured amount will, however, be reduced. The sum assured is reduced to a proportionate sum, which bears the same ratio to the full sum assured as the number of premiums actually paid bears to the total number originally stipulated in the policy. Paid up value=No. of premiums paid x Sum assured Total no. of premiums payable Q3. Are there any tax benefits provided by endowment policy? Yes, endowment policy helps you avail tax benefits. Premiums paid under the policy are exempted from tax under Section 80 C and maturity proceeds are exempted from tax under Section 10 (10D) Q4. Who needs an endowment plan? Endowment plans are suitable for those individuals desiring additional savings in the form of bonuses and profits, along with the sum assured. Q5. What are the things to be kept in mind while purchasing an endowment policy? There are plenty of endowment plans available in the market and finding a suitable endowment plan is a very tedious task to do. Choosing a suitable policy will depend on many factors, including your current life stage, individual need, income and risk appetite. Following are the things to be kept in mind while purchasing an endowment plan:

• Premium rates of various endowment plans
• Insurance company’s track record with respect to bonus payments
• Claim settlement ratio
• Customer service track record
• Financial standing of the insurance company

Money Back Plans Q6. Are there any tax benefits available with the money back plans? Yes, tax benefits are available with the money back plans. If the maturity amount is more than 5 times the premium paid during policy tenure, the sum assured gets exempted from income tax deductions. But if the premium paid is more than 10% of the Sum Assured for policies purchased after April 1st, 2012,  then the amount received will be taxable. Q7. Who is most suitable to buy a money back policy? A money back policy is suitable for those who want both wealth creation and life cover, good returns from investments, and also get paid during the term of the policy to meet different requirements in life. Q8. Can I transfer my money back policy? As of now, it is not possible to transfer a money back policy. The policy can be surrendered if desired. Q9. When can I surrender my money back policy? A money back policy can be surrendered any time after the payment of 3 years premium. The policy will have a surrender value based on the policy tenure and the number of premiums paid. Q10. What is new money back policy 25 years? The new money back policy 25 years is the same as the money back policy 20 years. The only difference between them is the survival benefits that the policyholder is entitled to receive. In the new money back policy 25 years, on survival, 15% of the sum assured is paid to the policyholder as survival benefits and the policy continues. The survival benefits are paid in the following manner:

• Payable at the end of 5^th policy year
• Payable at the end of 10^th policy year
• Payable at the end of 15^th policy year
• Payable at the end of 20^th policy year

And if the insured survives till the maturity of the policy then remaining 40% of the sum assured along with the accrued bonuses are paid at maturity to the policyholder. ULIPs Q11. How is Surrender value calculated in Unit Linked Insurance Policies? Surrender value in Unit Linked Insurance Policies is usually expressed as fund value less the surrender charge. Q12. What is NAV? NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers. Q13. What is the method of arriving at NAV for surrenders, maturity claim, switch etc.? In respect of valid applications received (e.g. surrender, maturity claim, switch etc.) up to 3.00 p.m. by the insurer, the same day’s closing NAV is applicable. In respect of valid applications received (e.g. surrender, maturity claim, switch etc.) after 3.00 p.m. by the insurer, the closing NAV of the next business day is applicable. Q14. What is a Unit Fund? The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policyholders are pooled together to form a Unit fund. Q15. What is a Unit? It is a component of the Fund in a Unit Linked Insurance Policy. Q16. What are the maturity benefits payable in ULIPs? At the end of your policy term i.e. at maturity, you will receive your Fund Value along with bonuses (if any). Q17. What are the death benefits available in ULIPs? In case of death of the policyholder within the term of the policy then the death benefit will be Fund Value and/or Sum Assured, net of partial withdrawals. Q18. What happens if payment of premiums is discontinued? For policies bought on or after 01-09-2010, lock-in period has been increased to 5 years. If you decide to stop the payment of premiums, the policyholder will have two options:

• Reviving the policy
• Complete withdrawal without any risk cover.

A notice shall be sent by the insurer giving the above options, within 15 days from the date of expiry of a grace period, if no option or option (ii) is exercised within 30 days of such notice, the proceeds of discontinued policy shall be refunded but not before the completion of the lock-in period. If such discontinuance is within lock-in period, the policyholder shall have the right to revive the policy within a period of two years from the date of discontinuance but not later than the expiry of the lock-in period. If the policyholder decides to discontinue the policy after the completion of the lock-in period i.e. 5 years then the policy will be terminated and accumulated fund amount till the discontinuation date shall be paid to the policyholder. There will be no surrender charges for the policy which is discontinued after 5 years. Q19. Can a partial encashment/withdrawal be made? Yes, Products may have the “Partial Withdrawal” option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units. Q20. Are investment returns guaranteed on ULIPs? ULIPs are those insurance products which provide both insurance coverage and investment option. The investment option allows the policyholder to invest in ULIP funds and the returns on this is not guaranteed. The returns on these funds are dependent on markets. Any investment made directly or indirectly in the stock market is not sure to offer returns.  Depending upon the performance of the unit linked fund(s) chosen; the policyholder may achieve gains or losses on his/her investments. Q21. Will I get a refund of the premiums if I am dissatisfied with a ULIP Policy? You can only get a refund of premiums if you cancel your policy within 15 days of receipt of the policy document. The period of 15 days is given to the policyholder to decide whether to keep the policy or to cancel it. This period is known as the free-look period. You shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover. Q22. Can I switch the investment funds after taking the ULIP policy? Yes, you can switch the investment funds after purchasing the policy with the help of ‘SWITCH’ option. A specified number of switches is made available to the policyholder by the insurer. And if you want to exceed that no. then a fee is to be paid for switching between the funds. Q23. Can I invest more than the regular premium in ULIPs? Yes, you can invest more than the regular premium with the help of the TOP-UP facility provided by the insurer. Q24. What information related to investments is to be provided by the Insurer to the policyholder? The Insurers are obliged to send an annual report, covering the fund performance during the previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, the investment portfolio of the fund, investment strategies and risk control measures adopted. Q25. What is the difference between ULIPs and Traditional Insurance Plans? Following is the comparison between ULIPs and traditional insurance plans:

	ULIPs	Traditional Insurance Plans
Description	ULIPs are a combination of insurance and investment	Traditional Insurance plans usually offer guaranteed maturity proceeds and they invest in low-risk return options.
Investment	Investment is made into both debt and equity instruments	Investment is made into debt instruments only
Transparency	ULIPs allow you to track your investment portfolio. Individuals will get intimation on the fund on regular basis.	No transparency is there and the investment portfolio cannot be tracked.
Flexibility	ULIPs offer flexibility to choose the life cover, to increase or decrease the premium by using the TOP-UP facility, partial withdrawal etc.	No such flexibility is available in traditional insurance plans.
Lock-in period	5 years	The Traditional insurance plan is locked in until its maturity.
Risk factor and returns	High risk; the returns depend on the market performance	Risk-free; returns are assured but not substantial
Switching options	A ‘SWITCH’ option is available in ULIPs to switch between the investment funds.	Individuals are not allowed to change the funds as it is decided by the insurance company.
Cost and charges	The costs and charges to manage ULIP are high as there is no limit set by IRDA. Expenses include mortality charges for life, insurance premium allocation charge, fund management charge and admin charges.	Charges to manage traditional insurance plans are nominal and not transparent.

Q26. Why are ULIPs better than Mutual funds? ULIPs and mutual funds have long been considered two of the better-performing assets to growing wealth.  This a comparison which might help in deciding which one is the better:  

ULIPs	Mutual Funds
ULIPs offer both investment as well as insurance.	Mutual funds offer good investment opportunities.
ULIPs are generally long-term plans.	Mutual funds are short and medium term investment opportunities.
ULIPs allow for switching between funds, mitigating the risk.	No switches are allowed, with exit the only option to offset the risk.
ULIPs offer limited liquidity.	Mutual funds can be liquidated very easily.
ULIPs offer tax benefits (under Section 80 C).	Only tax saving investments offer any sort of tax benefit.

ULIPs are best suited for individuals with a long-term financial plan of wealth creation and insurance. Whether it is for retirement, children’s education or for other financial goals, a ULIP continued till maturity works as an advantage. It gives you the dual benefit of savings and protection, all in a single plan. In addition, ULIP’s are for individuals who are not savvy with the equity market or different fund options available with Mutual Funds but would like to benefit from long-term capital appreciation with investment in equities.