What is ULIP and other related Questions?
ULIP or Unit Linked Insurance Policy/Plan - ULIP is the most talked about insurance plans. But before investing into such plans we need to look at the risk-return associated with it. Read the question and answers below to understand the concept of ULIP in detail.
1. What is ULIP ?
A ULIP is a life insurance policy which provides a combination of risk cover and investment in equity and debt markets. Unlike traditional plans, the ups and downs of share market have a direct effect on the performance of the ULIPs.
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.
3. What is a Unit?
It is a component of the Fund in a Unit Linked Policy.
4. What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.
The following are some of the common types of funds available along with an indication of their risk characteristics.
Equity Funds: Primarily invested in company stocks with the general aim of capital appreciation Medium to High
Income
Fixed Interest and Bond Funds: Invested in corporate bonds, government securities and other fixed income instruments Medium
Cash Funds: Sometimes known as Money Market Funds – invested in cash, bank deposits and money market instruments Low
Balanced Funds: Combining equity investment with fixed interest instruments
5. What is Net Asset Value (NAV)?
NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.
6. What is the benefit payable in the event of risk occurring during the term of the policy?
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.
7. What is the benefit payable on the maturity of the policy?
The value of the fund units with bonuses, if any is payable on maturity of the policy.
8. Is it possible to invest additional contribution above the regular premium?
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility.
9. Whether one can switch the investment fund after taking a ULIP policy?
Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.
10. Can a partial encashment/withdrawal be made?
Yes, Products may have the “Partial Withdrawal” option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.
11. What happens if payment of premiums is discontinued?
a) Discontinuance within three years of commencement – If all the premiums have not been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.
b) Discontinuance after three years of commencement — At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.
12. What information related to investments is provided by the Insurer to the policyholder?
The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted
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