The Hindu Business Line : What to check out

If an individual is keen on making money through ULIPs, it is important to know the various expenses the policy entails. The charges, meant to recover various costs, eat into the returns of the policyholder. Therefore, before buying a ULIP, an individual must ask his advisor to provide him with two concrete numbers. One, the value of the fund at the end of the term, without the impact of charges, and, two, the value of the fund after deducting charges. The fund with a wider gap between the two is the more expensive one.

How much of the premium would be actually invested?

In ULIPs, the whole of the premium you pay is not invested. The insurance company offering the product usually deducts certain charges from the premium money and invests only the balance. It is necessary to know from the advisor what proportion of the actual premium would be used for making investments, as the returns would be made available on the net premium (premium less charges) and not what the investor shelled out.

What would be my life cover?

Insurance policies are meant basically to provide you with a life cover. Though ULIPs combine insurance and investments in one product, an individual must be aware of the extent of protection that a policy offers and the number of years of life cover provided.

How is the premium allocated?

Allocation is another very important factor that cannot be overlooked. The individual should ask the agent to provide details of how assets will be allocated between different classes — equity, debt and cash.It is not enough to opt for an aggressive growth fund, you should know the exact percentage of equity and debt in it. The allocation would determine the returns you can expect from your chosen fund.

What is the ULIPs' track record?

The most significant question, however, is about the product performance. An individual must opt for a fund that has shown consistently good performance over the past few years. An agent must be asked to disclose the fund's fact sheet for at least a three-four-year period.

Priya Kapoor

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