FAQs for ULIPs
1. What is a ULIP?
2. What is a Unit Fund?
3. What is a Unit?
4. What Types of Funds do ULIP Offer?
5. Are Investment Returns Guaranteed in a ULIP?
6. What are the Charges, fees and deductions in a ULIP?
7. What should one verify before signing the proposal?
8. How much of the premium is used to purchase units?
9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?

10. What is Net Asset Value (NAV)?
11. What is the benefit payable in the event of risk occurring during the term of the policy?
12. What is the benefit payable on the maturity of the policy?
13. Is it possible to invest additional contribution above the regular premium?
14. Whether one can switch the investment fund after taking a ULIP policy?
15. Can a partial encashment/withdrawal be made?
16. What happens if payment of premiums is discontinued?
17. What information related to investments is provided by the Insurer to the policyholder?

1. What is a ULIP?

A ULIP stands for Unit Linked Insurance Plan. ULIP is a life insurance solution that provides for the benefits of financial protection in case of uncertain events like death or accident and flexibility in investment.

The premium paid for a ULIP is allocated at a certain rate in a fund(s) as per policyholder’s choice. The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP investors have the option of investing across various schemes, i.e., diversified equity funds, balanced funds, debt funds etc.

It is important to remember that in a ULIP, the investment risk is generally borne by the investor. Charges related to providing life cover, fund management, etc. are deducted from the fund during the course of the plan.

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2. What is a Unit Fund?

These are the invested parts of the premiums after deduction of all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders.

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3. What is a Unit?

It is a component of the Fund in a Unit Linked Policy.

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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 duration. Different funds have different risk categories. Different funds have different return potential. The following are some of the common types of funds available along with an indication of their risk characteristics.

General Description Nature of Investments Risk Category
Equity Funds Primarily invested in company Stocks with the general aim of capital appreciation Medium to High
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 Medium

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5. Are Investment Returns Guaranteed in a ULIP?

Investment returns from ULIP may “not be guaranteed”.

In unit linked products, the investment risk in investment portfolio is borne by the “policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

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6. What are the charges, fees and deductions in a ULIP?

ULIPs offered by different insurers have different charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.

6.1 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

6.2 Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan.

Mortality charges depend on number of factors such as age, amount of coverage, health status etc.

6.3 Fund Management Fees

These are fees charged for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).

6.4 Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.

6.5 Surrender Charges

A surrender charge may be charged if in case premature partial or full encashment of units is opted for (wherever applicable), as mentioned in the policy conditions.

6.6 Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

6.7 Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units

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7. What should one verify before signing the proposal?

One has to verify the approved sales brochure for

• All the charges deductible under the policy
• Payment on premature surrender
• Features and benefits
• Limitations and exclusions
• Lapsation and its consequences
• Other disclosures.

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8. How much of the premium is used to purchase units?

The full amount of premium paid is not allocated to purchase units.

Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the share of premium used to purchase units varies from product to product.

The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.

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9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?

The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document also known as the Free Look Period. The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.

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10. 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.

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11. 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.

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12. What is the benefit payable on the maturity of the policy?

The value of the fund units, is payable on maturity of the policy.

Is it possible to invest additional contribution above the regular premium?
Yes, there is a ‘Top Up’ facility available in most units where one can invest additional contribution as per their choice.

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13. Is it possible to invest additional contribution above the regular premium?

Yes, there is a ‘Top Up’ facility available in most units where one can invest additional contribution as per their choice.

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14. Whether one can switch the investment fund after taking a ULIP policy?

Yes. There is an option “SWITCH” which 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 given free of cost, a fee is charged for switches made beyond that limit

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15. Can a partial encashment/withdrawal be made?

Yes, some products 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.

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16. What happens if payment of premiums is discontinued?

There are 2 options

a) Discontinuance within five years of commencement – If all the premiums have not been paid for at least 5 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 5 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.

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17. What information related to investments is provided by the insurer to the policyholder?

The Insurers are bound to send an annual report, which would cover 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 to increase the policyholder’s benefit.

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To know more about different kinds of ULIPS, click here.