The following are some of the frequently asked questions on ULIPs, compiled from Insurance Regulatory Development Authority of India’s website:
The allocated (invested) portions of the premiums after deducting for all charges, and premium for risk cover, under all policies in a particular fund, as chosen by the policyholders, are pooled together to form a unit fund.
What types of funds does ULIP offer?
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profiles and time horizons. Here are some of the common funds, along with their risk characteristics:
Equity funds: Invested mainly in company stocks for capital appreciation, they fall under medium- to high-risk category.
Income, fixed interest and bond funds: Invested in corporate bonds, government securities and other fixed income instruments. These funds belong to medium-risk category.
Cash fund: Known as money-market funds with low-risk category, they are invested in cash, bank deposits and money-market instruments.
Balanced funds: Usually a medium-risk category, they are invested in equity investment with fixed interest instruments.
What are the charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. However, insurers have the right to revise fees and charges over time. Some common charges are:
Premium allocation charge: This is a percentage of the premium appropriated towards charges, before allocating the units under the policy. This charge normally includes initial and renewal expenses, apart from commission expenses.
Mortality charges: These charges are to provide for the cost of insurance coverage under the plan. Mortality charges depend on a number of factors such as age, amount of coverage, state of health etc.
Fund management fees: These are fees levied for management of the fund(s) and are deducted before arriving at the net asset value.
Policy/administration charges: These are fees for administration of the plan and levied by cancellation of units. This could be flat or vary at a pre-determined rate.
Surrender charges: It may be deducted for premature partial or full encashment of units wherever applicable.
Fund switching charge: A limited number of fund switches may be allowed each year, without charge.
Service tax deductions: Before allotment of the units, the applicable service tax is deducted from the risk portion of the premium.
