FAQ’s about Unit Linked Insurance Plans (ULIPs) in India
Several individuals have different opinion about Unit Linked Insurance Plans (ULIPs). Some say old ULIP’s have problem, some say new ULIP’s are with low allocation charges and good etc., Unit Linked Insurance plan work as protection cum investment plan. If you can understand more about ULIP’s you can judge whether this product is suitable to your or not. Based on various comments and questions by readers, I have summarized them into 10 major FAQ’s about ULIP’s.
10 FAQ’s about Unit Linked Insurance Plan
1) What is Unit Linked Insurance Plan (ULIP)?
ULIP is Unit Linked Insurance Plan. ULIP is a life insurance cum investment product which provides life risk care as well as growth into your investment. The amounts are invested in funds based on allocation rate as per policy holder choice.
2) What are different types of funds where ULIP’s would be invested?
Generally ULIP’s invest in equity funds, fixed interest bond funds, money market funds and balanced funds. Investors have a choice in selecting the types of funds where their money would be invested.
3) How much returns are guaranteed in ULIPs?
ULIP’s does not offer any guaranteed returns. The returns of ULIP depend on the performance of the fund. Typically you can expect 5% to 7% returns on new ULIP’s issued after 2009. If you have taken ULIP prior to 2009, the returns would be lower as they had high allocation charges.
4) What are various charges in ULIP’s?
There are basically 4 charges in ULIPs. These amounts would be deducted from your insurance premium and balance is invested which would generate returns for you.
- Premium Allocation charges: These are initial charges and renewal charges charged by insurance company.
- Mortality charges: This is the cost charged by insurance company to provide such ULIP plan.
- Management fees for the fund: These are charges for management of fund. These are reduced from the NAV of the fund.
- Surrender Charges: These are the charges which you need to bear in case you want to surrender your ULIP policy before the tenure of the plan. Generally you can surrender ULIP only after 5 years.
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5) How units are allotted under ULIP?
Your premium amount is reduced with various charges of ULIP’s and balance is used to allocate the units based on the premium payment mode.
6) How can I track my ULIP fund value?
Insurance company would allot units as and when you pay the insurance premiums. Each unit is tracked with Net Asset Value (NAV) of the fund. NAV would be determined every day by your fund. You can track the NAV and multiply with the units allotted to you to know the value of your fund. E.g. if insurance company has allocated 100 units to you and NAV is Rs 15, your fund value is 100 units x Rs 15 = Rs 1,500. NAV would be published by insurance companies on regular basis and you can check latest NAV on their websites.
7) What are the main benefits of ULIP?
- Death Benefit: Sum assured or value of the fund would be paid in case of death of insured.
- Maturity benefit: In case of survival, value of the fund would be paid to ULIP holder.
- Tax benefit: Insurance premium can be claimed as tax benefit under section 80C upto Rs 1.5 Lakhs per financial year.
8) Can we increase the premiums for ULIP?
Yes, you can increase your ULIP premiums which are called “top-up” premiums. Please consult your insurance company for that.
9) Can we do partial withdrawal from the ULIP amount?
Some insurance company offer partial withdrawal after a specific period of time. However if you want higher returns, you should avoid partial withdrawal’s of ULIP amounts.
10) Can we surrender ULIP at any time?
If you have taken the new ULIP policy, there is free look in period of 15 days from the date of receipt of policy. If you are not happy with the ULIP, then you can surrender them. Insurance company would deduct necessary stamp duty, medical expenses and any other expenses incurred towards issuing such policy and repay you the balance premiums.
If you want to surrender existing ULIP policy, they have a lock-in period of 5 years. You can surrender your ULIP after this period. However due to high allocation charges at initial period, your fund value would be less and you may not see much gains in the amount you invested through premiums. You can see some benefits when you continue your plan till the end of the ULIP tenure.
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10 FAQ’s about Unit Linked Insurance Plans (ULIPs) in India