28 February 2011

What is variable life insurance plan (VLIP) and its difference with unit-linked insurance plan (ULIP ) , Advantage of VLIP and all about premium which combines investment and insurance

A variable life insurance plan (VLIP) combines investment and insurance, just like an unit-linked insurance plan (ULIP). Variable life insurance schemes offer flexibility in the proportion of mortality and savings components.

These plans also offer more transparency, simplicity, quick liquidity, guaranteed minimum returns, transparent charges and ample risk cover. This type of life insurance allows you to participate in several investment options simultaneously targeting your premiums to separate accounts.

Generally, the optional investment funds include stocks, bonds, money market funds, equity funds, or a combination of them all. Variable Life Insurance allows you to switch from one sub-account to another.

You can also apply the interest earned on these investments toward the premium, reducing the amount you pay. In a departure from the ULIPs, the returns are declared by insurance companies annually and are not linked to the stock market.

One part of the premium is allocated to buy life insurance. The balance is invested in bonds or equities. The premium amount cannot be altered in the course of the policy, but the death benefit and savings element can be reviewed and altered as the policyholder's circumstances change.

You can increase your insurance protection and decrease the investment component, or vice versa. Another feature of this plan is that it does not get automatically canceled if the policyholder fails to pay the premiums as long as the premiums paid till date meet policy requirements. Under the plans, the premiums paid by the holder, after deduction of charges, will be credited to the account maintained separately for each policyholder.

If all due premiums are paid, the amount held in the policyholder's account will earn an annual interest which will be guaranteed for the entire policy term. In addition to this guaranteed return, if all due premiums are paid, the individual policyholder's account may earn an additional return depending upon the experience under the plan.

There is an option to pay additional (top-up) premiums without any increase in risk cover to the extent of total basic premiums paid under the policy. The premiums can be paid regularly at yearly, half-yearly, quarterly or monthly (through ECS mode only) intervals over the term of the policy. The sum assured ranges from 10 to 30 times the annualised premium, depending on age of entry.

There are two types of variable life insurance plans - participating and non-participating. Participating plans offer a guaranteed return, while nonparticipating plans offer an annual bonus at the end of each financial year in addition to guaranteed returns.

The minimum sum assured is Rs 50,000 or 10 times the annualised premium, whichever is higher for entry at the age below 45 years. After that age, the maximum is Rs 50,000 or seven times the annualised premium.

Top-up premium is allowed throughout the term. In case the insured decides to increase his contribution through a onetime top-up, a maximum of up to three percent charges may be deducted from the top-up. The product also provides for loans up to 60 percent of the balance at a specific rate of interest. 
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