ULIP FAQs – General queries about ULIPs and how does it function

1. What are ULIPs?
Unit-linked insurance policies or ULIPs are contemporary life insurance policies that offer investment benefits along with life cover. It is similar to traditional life insurance policies such as endowment, money-back and whole-life, but with one major difference. Unlike traditional policies, in ULIPS investment risks are borne by policyholder and not with the insurance company.

2. What are the different types of ULIP funds?
Different types of funds that ULIP offers are

• Equity Funds
• Income, Fixed Interest and Bond Funds
• Cash Funds
• Balanced Funds

3. Explain the different types of ULIP funds in detail along with the risk proximity?

4. What are the Charges, fees and deductions in a ULIP?
ULIP charges differ with insurers. However the structure for charges and fees remains the same.
The different types of fees and charges are

• Premium Allocation Charge
• Mortality Charges
• Fund Management Fees
• Policy/ Administration Charges
• Surrender Charges
• Fund Switching Charge
• Service Tax Deductions

5. Explain in detail the Charges, fees and deductions in a ULIP?

• Premium Allocation Charge

A percentage of the premium is pre-decided towards this charge and is levied before allocating the units. The charge normally includes initial and renewal expenses apart from commission expenses.

• Mortality Charges

These are charges which decide the overall costing 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

A fee is charged with regards to management of the fund(s) and is 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 is applied on premature, partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

• Fund Switching Charge

A limited number of fund switches are allowed in a year beyond which is 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.

6. What should one verify before signing the proposal?
The approved sales brochure should be verified for the following

• 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.

7. How much of the premium is used to purchase units?
Not the entire amount of premium paid is allocated for purchase of units. Insurers allot units on the portion of the premium pending after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product.

8. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?
Yes, the policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy or is not satisfied with the policy, within 15 days of receipt of the policy document. The term is also called as the ‘free look period’.

9. What is Net Asset Value (NAV)?
NAV or Net Asset Value 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.

10. What is the benefit payable in the event of risk occurring during the term of the policy?
In the event of risk to the life assured during the term of the policy, the sum assured and/or value of the fund units is payable to the beneficiaries In such an event the value available to beneficiary is pre-mentioned in the policy conditions.

11. What is the benefit payable on the maturity of the policy?
The value of the fund units along with bonuses, if any is payable on maturity of the policy.

12. 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, provided the feature is available with the product. It is known as ‘Top Up’ facility.

13. Whether one can switch the investment fund after taking a ULIP policy?
Yes ‘switch’ option allows for shifting the investments in a policy from one fund to another provided the feature is available in the product. Switches are free of cost up to a specified number beyond which a switching fee is levied.

14. Can a partial encashment/withdrawal be made?
Yes, ‘Partial Withdrawal’ option is available with products which allow withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.