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.
Fist you must understand Insurance is not an investment option its life cover option.Secondly all insurance plan are minimum should be kept for 10years.Its a long term benefit.Closing it after 3 yrs is wrong planning and wrong buying.
ReplyDelete@Balan,Insurance plans should be with you till age of 50plus..You understood right "Insurance is not an investment" So for insurance -opt Term insurance for next 25-35(not 10 years) and Investment -opt MF or PPF but no ULIP for sure..
ReplyDelete