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A list of frequently asked questions related to ULIP

A list of frequently asked questions related to ULIP

8 mistakes people make while choosing a term plan

Unit linked Insurance plans offer you the benefit of life cover along with the potential of growing your savings over the long term. This makes them a convenient investment option. However, considering that most people buy life insurance separately and invest in different avenues in tune with their risk taking ability, there are various doubts you may have regarding a ULIP.

These may range from the charges associated with them, how to generate returns, the risks that they come with, surrender before policy terms, withdrawal options among many others. Let us take a look at some of the questions commonly asked by investors who are considering parking their money in a ULIP.

What makes ULIPs a dual benefit option?

A part of the premium that you pay towards your policy is used to buy life insurance cover, while the rest is invested in the funds of your choice to generate higher returns.

Can I only invest in equity funds?

No. You can invest in debt and balanced funds apart from equity funds. This gives you the freedom to invest as per the risk you are willing to take as well as to benefit from market fluctuations in order to grow your capital.

What are the expenses involved in a ULIP?

Here is a list of the various charges that you have to pay when you invest in a ULIP:

  • Premium allocation fee directed towards underwriting, medical fees etc of the insurer taking care of your life cover
  • Mortality fees involved in offering you insurance for your life
  • Fund management charges which are deducted before the NAV of the funds of a ULIP is calculated
  • Surrender charges applicable when you exit the policy before 5 years and encash the units accumulated
  • Policy administration fees for managing the ULIP

What is meant by the lock-in period of unit linked insurance plans?

This means that ULIPs cannot be redeemed within the initial 5 years, during which you need to stay invested.

When can I withdraw from a ULIP?

The facility to take out money from your policy is available only after the completion of 5 years of investment, after which you can withdraw an amount equal to or less than 20% of the fund value of your ULIP. No tax is applied on this withdrawal.

Can I reduce my exposure to equities if I am risk averse?

Yes, you can easily switch from equity funds to debt funds if you are not comfortable taking a higher risk. You can also make a switch to benefit from movements in capital markets or if you are not satisfied with the performance of a fund. Additionally, the premium redirection facility helps you to manage the money of your future premiums to funds of your choice, be it debt, equity or hybrid. This gives you adequate control of your investment in tune with your goals.

Are ULIP returns guaranteed?

With unit linked insurance plans being market-linked, they do not provide guaranteed returns. However, you can take advantage of the power of compounding to maximise your savings when you continue to stay invested in a ULIP for a long period of 10 to 15 years.

What happens if I want to exit my policy before 5 years?

A discontinuance fee is to be paid to the insurer and the fund value accumulated till the time of surrender is moved to a discontinued policy fund where it earns interest. After the completion of 5 years, the money is returned back to you. The life insurance cover becomes invalid and you also lose the opportunity of wealth creation through ULIP.

I have completed 5 years of my ULIP. Can I surrender my policy now?

Yes you can. However, it is advisable that you lengthen your investment period to say 10 or 15 years. This is because the majority of your premium amount during the first 5 years goes towards various charges to be paid to the insurer.

Now that you have some of the answers to your queries on ULIPs, would you still draw a line when you buy life insurance and tailor your investments? Consider the Invest 4G Plan from Canara HSBC Oriental Bank of Commerce Life Insurance that gives you various death benefit options ranging from whole-life option to life option with premium funding benefit so that you can be rest assured that your family’s needs are taken care of.

Not only this, you can choose from different portfolio strategies as per your risk capacity to grow your money to meet the life goals of you and your family. So, choose a ULIP today and enjoy the plethora of benefits that come with it.

Speak to an insurance specialist now!

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