Insurance is probably the most misunderstood in the entire universe of financial products. It appeals to the most basic of human emotions—fear. Fear of loss of life, health or property. But when the other human emotion, greed, joins the mix, the cocktail becomes quite deadly. Outlook Money has maintained that insurance—both life and general—is the first product a person needs to buy, even before one rupee is invested. The annual insurance special is aimed at decoding the most important insurance products you need today.

We begin the issue with the second edition of our unique annual Unit-linked Insurance Plan (Ulip) ranking. Since Ulips now comprise about 90 per cent of new business, and are transparent, flexible and option-heavy life insurance products, we bring you an annual update on the best Indian Ulips in the market. However, comparing different Ulips is like trying to unravel a plateful of noodles. With over 100 Ulips in the market today, the task becomes even more difficult.

A good Ulip costs less, has a fund manager who consistently delivers benchmark-plus returns, provides adequate life cover and allows you to run the product for at least 15 years. These were our parameters to rank Ulips, but a lack of standardisation forced us to split the ranking into two parts. Part One (pages 26 to 32) deals with identifying a low-cost Ulip. Using the concept of the internal rate of return (IRR) or the real return after all costs have been taken into account, we ranked all qualifying Ulips on a standard 6 and 10 per cent return. Part Two (pages 36 to 40) looks at returns of these policies across four risk levels—Slow, Medium, Quick and Fast Funds.

The results of the two are combined on page 42, which explains how to identify the winning polices. You can do this yourself, if your policy does not feature here. Ask the company for the IRR and a two or three-year return, along with its benchmark. Look for an IRR of at least 7.5 per cent and a return of benchmark plus 5-7 per cent.

Also in this special issue are the five must-have covers for every person with dependants and assets. While a Ulip is a two-in-one product that bundles insurance and investment, we have always recommended a term plus mutual fund approach for those who can do it themselves. Pages 49 and 50 chalk out the important factors you should consider before buying these five products. Pages 52 and 53 take you through the new trends in the Ulip category (specifically, the return of guarantees), even as it tries to adjust to a changed market situation where investors are suddenly very risk-averse.

From pages 54 to 60, find out how best to use the new products and features that health, home and auto insurance polices now come with. In the health space, there are a variety of health covers that the life insurance industry has unleashed. From defined benefit plans to simple indemnity plans, the consumer now is spoilt for choice even while choosing a cover for his car. Although the industry has not been de-tariffed in the truest sense of the word, the consumers can bag as much in discounts as possible.

 The package also brings you opinions from the industry on the two most important issues for the industry today—increase in the foreign direct investment (FDI) limit and the impact of de-tariffing. So, turn the page and begin the journey to understand the least understood product of all.

How To Use The Rankings ?

The ideal ranking is one that is able to combine all the different features of a product into one number. That number can then be compared with others to see the pecking order. However, insurance products by nature are different and, thus, difficult to compare. Not only does the premium differ according to age, gender and health, but also due to sum assured, length of the policy, features in the policy and, of course, the fund chosen. After many hours of discussion in edit meetings, we decided to separate out the cost and return attributes of the Ulip product and look at each separately.

Once that was done, we had to combine the two in order that the exercise becomes meaningful. The cost and return ranking needs to be read separately but used in conjunction because a Ulip with a low internal rate of return (IRR) may not have a better management of investor funds. Or a Ulip with great returns may have such high costs that the advantage is taken away with the cost bite. However, mere looking at the IRR is not sufficient in itself. The second important criterion for the Ulip to do well is how well its fund performs. This is important because in arriving at the IRR figure, we assume that the return growth of 6 or 10 per cent is constant. However, the biggest variable is the fund performance, which ultimately decides how well your Ulip has performed. Consistent fund performance by, at least, 5 to 7 percentage points over the benchmark delivers as winners for the Ulip investors.

The ideal policy is one that has a high IRR and has a presence in the top return quartile (25 per cent) of the funds in that category. Birla Sun Life's ClassicLife Premier occupies the top position among the Type I Ulips in terms of IRR, which means it is the lowest cost policy in the plans that we considered.

Birla Sun Life's Supreme Life is at number two in the Type II plans in terms of IRR as well. So, we've got two low cost
policies. When we look at the return ranking, we find that Birla Sun Life is in the top quartile in the Slow and Quick Funds category and comes in the middle or at the fifth position out of nine plans in the Medium Fund category. It does not have
a presence in the Fast Fund category as their high equity fund is yet to complete two years.

The second insurance company to have both the cost and return advantage is Kotak Life. Long Life Wealth Plus in Type I is in the first quartile, at number four out of 32 policies considered. And Platinum Advantage tops the IRR list in Type II plans with an IRR of 7.55 per cent. Kotak manages to grab the first quartile space in the returns in the Quick and Fast Fund options, but it does not have a presence in the Slow or Medium categories in this selection.

While the scope of this study was restricted to the plans we chose, you may be invested in plans that are not here. Our advice to you: begin to ask the company for the IRR of the policy you have, the benchmarks they use and the performance of your fund against these benchmarks.

And for more questions or doubts, do write in to us and we promise to make this study even more comprehensive in 2009.;

ULIP RANKING 

source :- Outlook India