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How is ULIP structured?

How is ULIP structured?

Structured ULIP

As the economy kick-starts post the lockdown, it is an opportune time to look for investments and insurances to secure your future. It is a great idea to zero in on a policy that offers you the benefits of insurance while letting you grow your money. A ULIP plan not only gives you the advantage of both investment and life insurance but also lets you save tax.

However, before plunging into investing in a ULIP, make sure you understand how it works and what are its various components. This can help you utilise the features of this investment product to meet your financial goals in tune with your risk appetite as well as get adequate protection for life. Let us take a look at how a ULIP is structured to get a better idea.

Basic features

ULIPs are market-linked products that invest the premium paid by you across varied funds ranging from equity to debt as well as balanced in tune with your risk profile. Each policyholder is allocated units in accordance with the amount invested by them. You can switch between these funds in accordance with the risk you are willing to take.

Upon maturity, the total value of all units spread across various fund choices made by the investor during policy term is paid out. In the event of the death of the policyholder, the nominee receives the death benefit which may either be the fund value, sum assured, a combination of both or 105% of the premiums paid till the time of death.

A part of the premium of your ULIP plan is also invested towards providing a risk cover for your life in the form of life insurance. ULIPs also come with a 5 year lock-in period which makes them a long term investment. However, even before the premium is directed towards investment and insurance it is adjusted for charges as mentioned in the policy purchased by you. Here are a few:

  • Premium allocation: A fixed percentage of the premium paid towards your ULIP is deducted as fees for allocating the premium such as commission or renewal charges among others. Premium allocation charges decrease after the initial few years of policy purchase and are dependent on the frequency of premium payment as well as the type of premium chosen.
  • Fund management: A ULIP plan invests money across various funds as specified by the investor and thereby charges towards managing these funds apply which are deducted from the net asset value(NAV) of the fund. A maximum of 1.35% of the fund value is allowed to be charged towards managing a fund annually. Equity fund management attracts higher charges as compared to debt or balanced funds.
  • Mortality fee: A mortality fee is to be paid every month towards recovering the life insurance cover of your ULIP. Several factors such as the sum assured, age of the policyholder, medical history etc play a crucial role in determining the charges. Units of the funds invested under the ULIP are decreased in proportion with the charges as per your policy.
  • Switching charges: A ULIP plan allows you to switch between different funds as per your investment goals and market conditions. This offers you the flexibility to grow your wealth as per your comfort. While switches might be unlimited for some ULIPs, others charge you for a switch after you have exhausted the maximum limit. Depending on what your policy entails, you will have to pay a fee for making a switch beyond free switches allowed by your ULIP.
  • Premium redirection: Let us say you have chosen your premium to be invested in fund A, however as your financial goals near you might want to move to fund B, which is a debt-oriented fund as opposed to the equity fund that you are invested in. ULIPs allow investors this facility, also known as premium redirection, for a limited number of times. A fee is levied towards redirecting your premium as per your ULIP policy.
  • Policy administration: A flat fee is charged for the maintenance of your ULIP such as documentation, sending premium intimation or policy revival notice. These charges are also referred to as policy administration charges.
  • Discontinuing the ULIP: ULIPs come with a mandatory lock-in duration of 5 years. During this period, if you either surrender your policy or do not pay the premium, your investment is moved to a discontinuance fund. IRDA has prescribed discontinuance charges for ULIPs in such situations which are similar across all insurance providers.
  • Partial withdrawal: Once you have completed 5 years of your ULIP, you can withdraw some money from your corpus. Depending upon your insurance company, you might be allowed a limited number of such partial withdrawals. After which, an upfront fee is charged towards making a partial withdrawal. Some ULIPs might allow unlimited withdrawals as well.
  • Miscellaneous charges: Apart from all these charges, there might be some other fee to be paid as per specifications of your ULIP plan.

Despite all these deductions, a ULIP is a preferred investment choice that provides you the benefit of life insurance along with investment and tax-saving. Invest 4G plan from Canara HSBC Life Insurance allows you the choice of 7 different funds in tune with your risk appetite to grow your wealth. Or choose from 4 portfolio strategies to streamline your investments.

Give a fillip to your savings with loyalty additions and wealth boosters as you save tax on premium paid as well as maturity proceeds. Whether it is creating a retirement corpus, building a fund for your children’s’ education or simply wealth creation for your life goals, a ULIP is a perfect investment choice. Start saving today and see your money grow over the years when you invest in a Unit Linked Investment Plan.

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