Buying an insurance product has never been easy: one has to consider many things starting with what type of insurance plan will suit their need.
With a host of insurance plans available in the market--term, convertible term, endowment, money-back, etc, to name a few and each with different types of features--it becomes imperative on the part of the buyer to research well what makes a good fit. Then there are other worries for the insurance buyer: you have to figure out which provider you can trust, which has a better claims ratio or a reasonable list of exclusions, and so on.
But once the buyer has zeroed in on the insurance product/company and signed on the dotted line, the risk has been transferred and the buyer can expect the company to make good its specified commitment should a risk present itself. What the insurance company does with your premium is not your concern.
However, the complexity associated with researching insurance products goes to a new level once unit-linked insurance plans (ULIPs) come into the picture.
ULIPs offer policyholders the possibility to get better returns from the insurance policy as the returns are linked to the market, making it a product that entails high risk, which is borne entirely by the policyholder. (Read: The Complete Guide to ULIPs)
So beyond researching the plan, the onus now lies on the part of the policyholder to research the fund linked to the ULIP to better understand the risks it offers.
Insurance funds (made up from proceeds from insurance holders’ premiums) managed by insurance companies invest in equity, debt and liquid securities and are categorized much like mutual funds: large-cap, mid-cap, balanced and income funds. Thus, the risk/return profile of each fund is different.
But here’s the problem: the average insurance buyer would be hard-pressed to find detailed performance data for insurance funds--something that becomes important if you are considering buying a ULIP.
Introducing: Morningstar Rating for Insurance Funds
Morningstar, incorporated in 1984 in the United States, and a leading name in investment research, is pleased to announce the introduction of the Morningstar Rating for Indian insurance funds. Commonly known as the star rating, it has been in existence for mutual funds for decades globally, and is the world’s foremost mutual-fund tracking system.
The Morningstar Rating is a quantitative, five-scale star-rating system that instantly gives a visual measure of how well a fund has delivered returns compared to its peers, after adjusting for the risk, or volatility, it has endured.
Thus, in any category, the funds with the top 10% risk-adjusted returns are awarded the five star rating, followed by the next 22.5%, 35%, 22.5% and 10%, which get four to one stars, respectively.
The Morningstar rating is initiated on every fund that has completed three years in existence and once it crosses five and 10 years in existence, those return periods are also taken in account.
Much like the mutual fund rating, the Morningstar Rating is objective and not subjective, meaning it only conveys how well the fund has done on a risk-adjusted return basis compared to peers, and is not Morningstar’s own qualitative view on the fund or its future potential, though research exists that shows funds with high star ratings generally outperform those with low star ratings.
With this step, we aim to break new ground and offer a one-of-its-kind research tool for insurance holders that did not exist before. We have also created an array of tools to help you find just the fund you were looking for.
Click here to get started.