Tips on Best ULIP Insurance Policy

Understanding ULIPs

ULIPs are a combination of insurance & investments. It has the double benefit of providing a RISK cover & investing in stock markets. However, Unlike traditional plans the ULIPS are subject to the risk factors where the risk is borne by the policyholder, the investment risk is related with the stock markets & accordingly the NAVs of the units go up & down depending upon the fund’s performance & the factors affecting the capital market .

Basic Charges in ULIPs:

Premium Allocation Charge:

This is a percentage of the premium appropriated towards charges before allocating the units. This percentage is generally higher in the first few years varying greatly from company to company. Say your premium allocation charges are 30%, and then out of your total premium paid of Rs. 1, 00, 000 Rs. 70, 000 are invested in the funds effectively.

Mortality Charges:

These are the charges to insure you against life cover which depends on no of factors such as age, amount of coverage, state of health etc(age primarily). In a policy without life cover(eg: some pension plans), then the mortality charges become zero.

Fund Management Charges:

These charges are deducted for managing the funds before arriving at the Net Asset Value(NAV). The fee is charged as a percentage of funds under management by the fund mangers. These are ranging from 0.5-2% per annum.

Policy/Administration Charges:

These are the charges for administration of the plan which could be flat throughout the policy term or vary at a pre-determined rate. These are a monthly fixed amount which varies every year with inflation or as a percentage of sum assured.

Surrender Charges:

These charges are deducted for premature partial or full encashment of units.

Fund Switching Charges:

The charges when you wish to switch ULIP options like from Equity to debt. Generally a limited number of switches are allowed without any charge.

REMEMBER: Duration of investment :

Don’t expect the moon in 3 years , stay invested for 5-8 years for good returns. The charges are higher in the first few years which is why it takes more years for your funds to grow. Most insurance agents will inform you of the option to withdraw the money after 3 years, but REMEMBER to stay invested for 5-8 years to get good returns.

Know the charges:

The Insurance Regulatory Development Authority of India(IRDA) has issued guidelines according to which the investors should know all the charges & no hidden charges can be charged.

Invest as per your risk profile:

You must understand your risk appetite & accordingly allocate assets across different categories. Choose your fund –Equity or otherwise, depending upon your age and risk profile. Thumb rule is that% of your equity share should be 100 – age, i.e reduce equity shares with age.

Other features :

Apart from the charges you should also look at the flexibility in switching your funds, fund management charges & the funds past performance should also be looked upon before you look out for Best ULIPS Insurance Policy.

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