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. In a unit linked policy the investment risk is generally borne by the investor.
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.
It is a component of the Fund in a Unit Linked Policy.
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.
|General Description ||Nature of Investments ||Risk Category |
|Equity Funds ||Primarily invested in company stocks with the general aim of capital appreciation ||Medium to High |
|Income, Fixed Interest and Bond Funds ||Invested in corporate bonds, government securities and other fixed income instruments ||Medium |
|Cash Funds ||Sometimes known as Money Market Funds — invested in cash, bank deposits and money market instruments ||Low |
|Balanced Funds ||Combining equity investment with fixed interest instruments ||Medium |
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.
ULIPs offered by different insurers have varying charging 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:
- 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.
- 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.
- Fund Management Fees: These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
- 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.
- Surrender Charges: A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
- Fund Switching Charge: Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
- 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
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.
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.
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.
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.
The value of the fund units with bonuses, if any is payable on maturity of the policy.
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.
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.
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.