ULIP fundamentals #1

What is a ULIP?
Original definition by IRDA - ULIP =Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of insurance and investment.
My definition : It’s full of charges for policy holder and  a profit making policy for insured and loss making for policy holder.

How does ULIP work?
Once you decide your premium,They decide your sum assured amount for insurance and they will invest remaining premium after deducting high charges in the stock/debt market based on your fund.

List of charges for ULIP plan-It varies based on company:


ULIP Plan Charges

Premium Allocation charges

Fund management charges 

Policy Year

As a % of Annual Premium

As a % of Top Ups

Fund Category

as % Annual of Net Assets 

1

25-40

2-5

Dynamic

1.25

2

15-20

2-5

Growth

1.25

3

3-5

2-5

Balanced Fund

1.10

4

2-3

2-5

Conservative

0.90

and On

2-3

2-5

Secure

0.90

Policy Administration Charges

Rs.50-75 Per Month

Mortality Charges rate (means insurance charges)

It varies based on S.A. and Age

Switching Charges (if move to different fund category now )

2/4 Switches free per year then Rs.500 Per Switch

Redirection Charges(Want to move to different fund for
future premium)

2/4 redirects free per year then Rs.500 Per redirect

Partial Withdrawal charges

Not allowed before 3 to 5 years.

High Surrender Charges before 3 to 5 years

Morbidity charges (For Dread disease Cover)

Govt. Service tax on all above charges

Am I getting both Insurance and return of investment?
No,The sum assured amount of insurance will be very less – No use of insurance and they will invest premium after deducting high charges so cant get good return too.It’s not guaranteed

What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit everyone’s risk profile like secure (Debt) fund, balanced fund(Mix), and growth (Equity) fund.



Fund Category and portfolio exposure(%)

Asset Type

Secure

Conservative

Balanced

Growth

Dynamic

Govt. Securities

50-100

50-80

20-50

0-30

0-100

Corporate bonds

0-50

0-50

20-40

0-30

0-100

Money        Market

0-20

0-20

0-20

0-20

0-100

Equities

NIL

0-15

10-40

20-70

0-100

Why does an ULIP plan look attractive?
When you look at illustration of ULIP plan, it shows only positive sides. It shows after 15 year you will get 5-6 lakh by just paying annual premium of 15K-20K.It totally misguides us.

Can I make Rs. 25 Lakh after 25 years in ULIP plan?
No,It’s not possible in ULIP and it’s not guaranteed for sure.
Just ask your insurer to give written confirmation of paper.