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How is Your Unit-Linked Insurance Plan (ULIP) Premium Utilised?

dateKnowledge Centre Team dateNovember 03, 2021 views113 Views
Best ULIP Online | ULIP Premium Allocation

ULIP is a financial product that provides your life insurance cover and also acts as an investment. It combines the benefits of both insurance and investment in a single plan. Thus, this plan helps you to protect your family’s future and gives you a chance to build your wealth so you can achieve your goals. Buying the best ULIP online is one of the wisest financial decisions as it is completely hassle-free and convenient. Also, as ULIPs are known to offer the best of both the worlds - insurance and investment - you should always understand how it works so that you can gain benefits from it.

For ULIPs, as is the case with other life insurance plans, you have to pay a premium to get the policy. The premium depends on the amount of life coverage you want. The fixed premium you have to pay is used for providing life insurance as well as an investment instrument. Where the money will be invested is totally up to you. You can choose to invest either in debt or in equity or even both, known as hybrid investment.

Benefits of Buying a ULIP | Buy the Best ULIP Online

How is Premium Allocated in ULIPs?

As said above the premium you pay will offer you two benefits. It will invest your amount in funds to give you return while simultaneously making sure of the fact that policyholders family stays protected. This part is done by providing live coverage.

FUNDS IN ULIP SELECTED PREMIUM ALLOCATION RATIO ALLOCATION OF RS 1 LAKH P.A. ALLOCATION OF RS 20,000 P.M.
EQUITY AGGRESSIVE GROWTH FUND 15% 15,000 3,000
EQUITY INDEX FUND 15% 15,000 3,000
DEBT FUND GILT PLUS 25% 25,000 5,000
DIVERSIFIED DEBT FUND 20% 20,000 4,000
HYBRID FUND 20% 20,000 4,000
LIQUID FUND 5% 5,000 1,000
TOTAL 100% 1,00,000 20,000

Table 1: Premium Allocation to various funds in ULIPs

The premium which you pay is allocated to investment. As the policies name suggests, the amount you invest is broken down into specific ‘units’.

Learn how does risk involved on ULIP investment as equity shares.

Now, the whole fund is divided into these units. You will be allocated units from these funds in proportion to the amount actually invested by you. The units value will change with a change in its underlying assets.

FUNDS IN ULIP ONGOING NAV AT THE TIME OF UNIT ALLOCATION UNIT ALLOCATION IN THE 1ST YEAR
for the Annual Investor for the Monthly Investor
EQUITY GROWTH AGGRESSIVE FUND 25.5 588.24 118
EQUITY INDEX FUND 150.4 99.73 20
DEBT FUND GILT PLUS 31.1 803.86 161
DIVERSIFIED DEBT FUND 43.6 458.72 92
HYBRID FUND 51.9 385.36 77
LIQUID FUND 13.6 367.65 74
TOTAL 2,703.55 540.71

Table 2: Unit allocation in the selected funds for the invested amount

If you wish to withdraw a part of your investment then the proportion of units will be sold for the payment of the withdrawal proceeds.

If due to unforeseen circumstances you die in the middle of the policy, then the death benefit will be provided to the nominee. The death benefit is higher than the guaranteed sum assured and 105% of the total premiums paid.

On the other hand, you do not die during the course of the policy, then you will be entitled to receive the total value of all the units invested by you in all the funds combined as a maturity benefit.

Charges in a ULIP

Every investment has associated expenses. The investment component of ULIP also has some charges associated with it as well. These costs are divided into several heads. The costs are deducted out of the invested premium or the fund value of the ULIP folio.

ULIPs charge the expenses under the following heads:

Premium Allocation Charge
  • Incurred by the company in allocating your premium to your market-linked securities
  • Applicable a percentage of the total premium
  • Depends upon factors such as frequency of premium, mode of payment etc.
Policy Administration Charges
  • Charges relating to the administration of the policy such as issuing dividends, managing withdrawals and nomination changes
  • These constitute in-office expenses such as paperwork
  • This can be either flat rate or can apply at a predetermined percentage
Fund Management Charges
  • Charges incurred for managing your investments in your chosen funds
  • Deducted from the fund’s Asset Value directly. NAV (Net Asset Value) estimate is after expenses
  • This is a fixed percentage. In Invest 4G, fund charges vary from 0.50-1.35% of asset value
Switching Costs
  • Charge for transferring funds from one fund option to another within the ULIP manually
  • Generally, companies provide a number of free switches
  • This is charged after that limit is exhausted
Discontinuation Charges
  • Cost for surrendering your policy before maturity or claim
  • This charge is applicable when you try to discontinue your policy within the lock-in period
Mortality Charges
  • Mortality charge is associated with the life cover provided to you during the policy
  • This amount is generally charged monthly and is levied by the way of cancellation of the existing units
  • The charge may decrease with the increase in the fund value

Premium paid by you for ULIP is automatically utilized for all of these charges, and these remain somewhat the same for all the policies.

Charges Under Invest 4G

Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G is an online ULIP, which boasts of being one of the lowest expense ratios in the segment. The following charges are not applicable in the plan:

a) Premium Allocation Charge
b) Policy Administration Charges
c) Partial Withdrawal Charges
d) Switching Charges

Invest 4G only deducts mortality and fund management charges from your portfolio.

Additionally, you can receive the mortality charges back if you survive the policy term. Thus, effectively the plan only charges fund management fees to you.

How is ULIP Different from Other Plans?

The investment component present in ULIP is what makes ULIP stand out from the other plans on offer. The existing traditional plans include the likes of Term Insurance, Endowment plan, Money-back plan and even whole life insurance. What these plans do is provide you with a hefty life cover as well as a guaranteed maturity benefit but they do not provide investment options.

1. Focuses on the Goals: ULIP are primarily an investment instrument, which can help you customize your savings towards a specific goal.

2. Multiple Investment Options: ULIP will provide you with options to choose from to invest your money. It gives you full flexibility as you have full right to decide in which types of security your money will be invested. You can also invest your money in more than one fund option at the same time. While the traditional plans do not offer you this flexibility.

3. Switching Option: ULIP gives you the ability to switch that is to change your investment fund option in the policy according to your preference.

4. Withdrawal: ULIP allows you to withdraw funds after the lock-in period at no extra charge. Other plans charge heavy and there is a restriction as well.

Thus, ULIP provides you with ample flexibility. Policies like Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G also come with a safety switch option that allows you to switch between funds during the duration you pay your premium. The sum is invested in instruments whose returns are linked to the markets.

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