Insurance policy is a contract of protection/compensation by the insurer to the insured. It is designed to reimburse or compensate the insured party for the financial loss caused in event of death or damage to merchandise as mentioned in the insurance contract.

Broadly insurance can be classified in two categories:
First - Life Insurance which matures in event of death of the insured/policyholder. On occurrence of such an event the insurance company pays a sum of money assured to the nominee/beneficiary (person nominated by the policyholder). Life Insurances are of two types:
Traditional Plans - which contain Endowment Plan , Cash Back Plan, Term Plan , (Term Life Insurance) and Whole life policy. And Unit-linked Insurance Plans - are of 4 types - Endowment cum Ulips, Children Plan , Retirement Plan or Pension plan and investment/saving plans.
Second - General insurance. All insurance policies other than life insurance policies come under general insurance segmentation. (Also known as non-life insurance policies). These policies include Home Insurance, Auto Insurance, Travel Insurance, Marine Insurance, Theft Insurance, Office insurance and Health insurance
Health insurance is most acquired policy in general insurance segment. Health insurances are of 3 types - Comprehensive Plan - which include Mediclaim and Fixed benefits plan, Accidental Insurance and Critical Care plan .

Home > ULIPs Plan

ULIPs- Systematic Insurance cum Investment Plan

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives investors the benefits of both insurance and investment under a single integrated plan.

Features of ULIPs

ULIP policy holders can make use of features such as top-up facilities, switching between various funds during the tenure of the policy, reduce or increase the level of protection, options to surrender, additional riders to enhance coverage and returns as well as tax benefits.

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Advantage of ULIPs as a good Investment-

Reduced Charges
Lower Recurring Costs: ULIPs has lower fund management charge than mutual funds.
Surrender Value: You get some amount even if policy lapses.
Triple Benefits- Life cover, wealth creation and tax saving are bundled in one product. Good for investors who don’t want multiple products.
Tax Efficiency- No tax implication while switching from one option to another.
High Liquidity: Partial withdrawals are allowed.

Disadvantage of ULIPs -

Costlier than funds: The upfront charges of ULIPs are higher than those for mutual funds.
No Flexibility: The new rules require one to pay premium for the entire term. If the premium stopped, the plan discontinued.
Mortality Charges keep raising: The mortality charges keep rising as the policyholder grows older.
Limited Choice: A ULIP investor has limited choice as investor gets tied to the scheme he has bought but mutual fund investor is free to choose any scheme.

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

General Description	Nature of Investments	Risk Category
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	Medium

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.

What are the Charges, fees and deductions in a ULIP?

ULIPs offered by different insurers have varying 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.

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 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, 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 (NAV).
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.
Surrender Charges: A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
Fund Switching Charge: Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
Service Tax Deductions: Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

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

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
• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

Understand ULIPs and its Charges

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6 Comments, read them below or add one

Mrs. Indu January 15, 2013 5:12 pm

what are the maximum charges an insurance company can take in ulips??

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Dushyant February 15, 2013 12:32 pm

IRDA has capped overall charges at 3% of net yield in case of ULIPs with tenure of 10 years or below and fund management charge shall not exceed 1.5 per cent. Net yield is the return that customer gets on maturity minus charges. In case of insurance policies of above 10 years, IRDA has capped total charges at 2.25 per cent, of which the fund management charges shall not exceed 1.25 per cent.

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Madhur January 2, 2013 5:16 pm
Are Investment Returns Guaranteed in a ULIP?
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- Balbir January 17, 2013 1:25 pm
  Investment can never be guaranteed in ULIP plans.
  Post Reply
Heena January 2, 2013 5:10 pm
Arun , LIC has recently launched ULIP Plan- Flexi Plus. Endowment plus is also a ULIP Plan
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arun p January 1, 2013 9:10 pm

all these are private players. i need only LIC

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rahul January 14, 2013 9:00 pm

LIC is not a govt comany ,, its just a corporation,, and Rs 10 paid by lic is equal to Rs 10 from any insurance org.,, rules are same for everybody,, dude chk ur knowledge..

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Praveen December 28, 2012 5:49 pm
Is ULIP superior to ordinary life insurance quotes?? Is it so..How??
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Ajay Mathur December 24, 2012 4:17 pm

what is the limit on top ups in ulips??

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ankita February 15, 2013 12:27 pm

You can top up a ULIP anytime during the life of the policy until the total of top-up premiums does not exceed 25% of the total premium paid. Every company clearly defines the minimum top-up amount in the policy document itself. It is usually more than Rs 2,000. But this option is available only for disciplined customers who pay their premiums on time

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