What is a ULIP?
What is a Unit Fund?
What is a Unit?
What Types of Funds do ULIP Offer?
Are Investment Returns Guaranteed in a ULIP?
What are the Charges, fees and deductions in a ULIP?
What should one verify before signing the proposal?
How much of the premium is used to purchase units?
Can one seek refund of premiums if not satisfied with the policy, after purchasing it?
What is Net Asset Value (NAV)?
What is the benefit payable in the event of risk occurring during the term of the policy?
What is the benefit payable on the maturity of the policy?
Is it possible to invest additional contribution above the regular premium?
Whether one can switch the investment fund after taking a ULIP policy?
Can a partial encashment/withdrawal be made?
What happens if payment of premiums is discontinued?
What information related to investments is provided by the Insurer to the policyholder?
1. What is a ULIP?
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life
insurance policy which provides a combination of risk cover and investment. The
dynamics of the capital market have a direct bearing on the performance of the
ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY, THE INVESTMENT RISK IS GENERALLY
BORNE BY THE INVESTOR.
Top
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the
charges and premium for risk cover under all policies in a particular fund as
chosen by the policy holders are pooled together to form a Unit fund.
Top
3. What is a Unit?
It is a component of the Fund in a Unit Linked Policy.
Top
4. What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one’s investment objectives,
risk profile and time horizons. Different funds have different risk profiles.
The potential for returns also varies from fund to fund.
Top
5. Are Investment Returns Guaranteed in a ULIP?
Investment returns from ULIP may not be guaranteed.” In unit linked
products/policies, the investment risk in investment portfolio is borne by the
policy holder”. Depending upon the performance of the unit linked fund(s)
chosen; the policy holder may achieve gains or losses on his/her investments. It
should also be noted that the past returns of a fund are not necessarily
indicative of the future performance of the fund.
Top
6. What are the Charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. Broadly, the
different types of fees and charges are given below. However it may be noted
that insurers have the right to revise fees and charges over a period of time.
6.1 Premium Allocation Charge This is a percentage of the premium appropriated
towards charges before allocating the units under the policy. This charge
normally includes initial and renewal expenses apart from commission expenses.
6.2 Mortality Charges These are charges to provide for the cost of insurance
coverage under the plan. Mortality charges depend on number of factors such as
age, amount of coverage, state of health etc 6.3 Fund Management Fees These are
fees levied for management of the fund(s) and are deducted before arriving at
the Net Asset Value (NAV) .
6.4 Policy/ Administration Charges These are the fees for administration of the
plan and levied by cancellation of units. This could be flat throughout the
policy term or vary at a pre-determined rate. 6.5 Surrender Charges A surrender
charge may be deducted for premature partial or full encashment of units
wherever applicable, as mentioned in the policy conditions.
6.6 Fund Switching Charge Generally a limited number of fund switches may be
allowed each year without charge, with subsequent switches, subject to a charge.
6.7 Service Tax Deductions Before allotment of the units the applicable service
tax is deducted from the risk portion of the premium. Investors may note, that
the portion of the premium after deducting for all charges and premium for risk
cover is utilized for purchasing units
Top
7.What should one verify before signing the proposal?
One has to verify the approved sales brochure for
• all the charges deductible under the policy
• payment on premature surrender
• features and benefits
• limitations and exclusions
• lapsation and its consequences
• other disclosures
• Illustration projecting benefits payable in two scenarios of 6% and 10%
returns as prescribed by the
life insurance council.
Top
8. How much of the premium is used to purchase units?
The full amount of premium paid is not allocated to purchase units. Insurers
allot units on the portion of the premium remaining after providing for various
charges, fees and deductions. However the quantum of premium used to purchase
units varies from product to product. The total monetary value of the units
allocated is invariably less than the amount of premium paid because the charges
are first deducted from the premium collected and the remaining amount is used
for allocating units.
Top
9. Can one seek refund of premiums if not satisfied with the policy, after
purchasing it?
The policyholder can seek refund of premiums if he disagrees with the terms and
conditions of the policy, within 15 days of receipt of the policy document (Free
Look period). The policyholder shall be refunded the fund value including
charges levied through cancellation of units subject to deduction of expenses
towards medical examination, stamp duty and proportionate risk premium for the
period of cover.
Top
10. What is Net Asset Value (NAV)?
NAV is the value of each unit of the fund on a given day. The NAV of each fund
is displayed on the website of the respective insurers.
Top
11. What is the benefit payable in the event of risk occurring during the term
of the policy?
The Sum Assured and/or value of the fund units is normally payable to the
beneficiaries in the event of risk to the life assured during the term as per
the policy conditions.
Top
12. What is the benefit payable on the maturity of the policy?
The value of the fund units with bonuses, if any is payable on maturity of the
policy.
Top
13. Is it possible to invest additional contribution above the regular premium?
Yes, one can invest additional contribution over and above the regular premiums
as per their choice subject to the feature being available in the product. This
facility is known as “TOP UP” facility.
Top
14. Whether one can switch the investment fund after taking a ULIP policy?
Yes. “SWITCH” option provides for shifting the investments in a policy from one
fund to another provided the feature is available in the product. While a
specified number of switches are generally effected free of cost, a fee is
charged for switches made beyond the specified number.
Top
15. Can a partial encashment/withdrawal be made?
Yes, Products may have the “Partial Withdrawal” option which facilitates
withdrawal of a portion of the investment in the policy. This is done through
cancellation of a part of units.
Top
16. What happens if payment of premiums is discontinued?
a) Discontinuance within three years of commencement – If all the premiums have
not been paid for at least three consecutive years from inception, the insurance
cover shall cease immediately. Insurers may give an opportunity for revival
within the period allowed; if the policy is not revived within that period,
surrender value shall be paid at the end of third policy anniversary or at the
end of the period allowed for revival, whichever is later.
b) Discontinuance after three years of commencement -- At the end of the period
allowed for revival, the contract shall be terminated by paying the surrender
value. The insurer may offer to continue the insurance cover, if so opted for by
the policy holder, levying appropriate charges until the fund value is not less
than one full year’s premium. When the fund value reaches an amount equivalent
to one full year’s premium, the contract shall be terminated by paying the fund
value.
Top
17. What information related to investments is provided by the Insurer to the
policyholder?
The Insurers are obliged to send an annual report, covering the fund performance
during previous financial year in relation to the economic scenario, market
developments etc. which should include fund performance analysis, investment
portfolio of the fund, investment strategies and risk control measures adopted.
Top
|