Sanjeev Verma is spending more time today switching from the debt to equity plan and back again. Prior to the stock market rising to a new high as the BSE Index crossed the 6,500-mark, Sanjeev shifted his units under the unit-linked insurance plan to the equity fund of the same insurance company.
This was a major bonanza. With the net asset value rising considerably, Sanjeev was just one of the three per cent of policyholders at Birla SunLife Insurance Company who decided to exercise his option to switch from funds.
Just as the Sensex has been falling over the last six trading sessions, Sanjeev is contemplating switching back to the debt fund.
His only dilemma is that yields have been volatile. What Sanjeev fails to understand is that a ULIP is essentially a long-term insurance product and short term blips in either markets are of little importance.
That of course is what the insurance industry advocates. Sales of ULIP account for as much as 65-75 per cent of incremental business.
"My main worry is all our agents are selling ULIP. What happens when markets change? Will they know how to sell traditional policies as the customer realises the risk factor has been passed onto him," questions Sam Ghosh, CEO Bajaj Allianz Life. 75 per cent of the company's policies sold today are ULIPs.
SBI Life Insurance feels it has evolved a solution for policyholders as most ULIP investors are not really financially savvy.
Launching 'Horizon' last week, SBI Life offers a unique ULIP where investment is on auto-pilot.
"This is an ideal product for those who are not financially savvy and do not have the know-how on how to invest," said S Krishnamurthy, CEO SBI Life.
How does the product work? Once the customer chooses from a dynamic or a growth plan, the insurance company takes over.
Based on the term of the policy period, SBI Life fund managers will invest accordingly -- maximum in the equity market during the beginning of the policy term and nil when the policy is to mature.
For instance, under the dynamic ULIP plan, in the first year 100 per cent of the premium will be invested in the stock market.
The second and third year premia will also be invested fully in equity. But by the fourth year, the percentage falls to 95 per cent allocation to equity till the 12th year when the 'experts' at SBI Life will allocate 55 per cent in stocks and balance in debt and cash.
This is under the automatic asset allocation route decided by SBI Life.
The idea is to safeguard the interest of policyholders to ensure they do not take undue risks towards the maturity of the policy. Risk is identified in terms of investment in equity. Hence under both plans, the allocation towards equity falls from 55-80 per cent down to zero by the end of the term.
While there is an advantage, the policyholder has no option to exit or any rights to make switches during the policy term.
However, this investment logic propagated by many a fund manager could well boomerang against the company.
Should the equity markets do well at the time a policy is about to mature, and interest rates take a hit, returns will be affected.
"We give all the upside and protect our policyholders against the downside," said Birla SunLife marketing executive.
This is possible as some players like Birla SunLife, ICICI Prudential Life and Bajaj Allianz among others offer an assurance of capital guarantee varying from about three per cent. Of course, this guarantee does not come free, and is marginally more expensive than a plain ULIP.
Aviva Life Insurance, on the other hand, gives a credit on top-ups. For instance, if you pay in Rs 100 as a top up, the actual allocation to units will be Rs 101. If you keep the regular premiums to the minimum and increase your top ups, you can enhance returns in the long run.Powered by 
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