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.
src:ET