What Should One Verify Before Signing The Proposal For ULIPs?

Apr 13, 2018 | 1 year ago | Read Time: 2 minutes | By iKnowledge Team

Before you sign on the dotted line, make sure you verify things like charges, exclusion, policy disclosures, features, etc.

You’ve done your research on unit-linked insurance plans (ULIPs). You understand how they work, the advantages of investing in them and so on. You are so confident that you feel you can invest in them straight away. But hold on! There are just a few more things you ought to look at before you actually sign up for a ULIP. So, let’s find out what they are.

Check out the policy’s deductible charges

  • Premium allocation charges: Whenever you buy a ULIP, the insurer spends a certain amount to take care of medical expenses, distributor fees and underwriting expenses of the policy. In order to offset these expenses, the insurer deducts a percentage of it from the premium before it is invested in the fund. However, some insurers may waive these charges as well.
  • Mortality charges: Factors that affect mortality charges are age, coverage amount, state of health etc.
  • Fund management fees: Fund management charges are levied before arriving at the NAV. Fund houses use this amount to maintain their overhead cost, operation cost and so on.
  • Policy/Administration charges: This is charged during cancellation of fund units. The charges could be the same throughout the policy term or can change at a pre-determined rate.
  • Discontinuance charges: If you discontinue the policy, you may have to pay a ‘surrender charge’.
  • Fund-switching charges: You are allowed to switch from one fund to another. But there’s a limit. If you exceed that, you are liable to pay a fund-switching charge.
  • Service tax deductions: The applicable service tax is deducted from the risk portion of the premium before the allotment of fund units.

Features and benefits

ULIPs aren’t restricted to insurance and wealth building only. They have various other features and benefits such as transparency and liquidity. So, make sure you know about them before you sign up.

Limitations and exclusions

Read through the policy document for all types of limitations and exclusions. For instance, the ULIP may be considered null and void if the policyholder commits suicide within a year. ULIPs also have a lock-in period of five years.  

Lapsed policy and its consequences

What happens if the policy lapses due to delay in paying your premium? Insurers usually give you a grace period, beyond which they deactivate the account. So, know what the grace period is. This varies from policy to policy.

Other policy disclosures

Make sure that you read through the policy’s disclosures, as it is difficult to later prove that you were wrongly sold the insurance.

Illustration of benefits

Make sure the insurer draws two scenarios of 4% and 8% returns before you sign the dotted line. Don’t hesitate to ask because this has been mandated by the life insurance council.

To surmise, even though you know how ULIPs work, you need to pore over policy proposal before signing it. The fine print may contain crucial information that you can’t afford to merely skim over. Once you do that, you are fully aware of what you are getting into.

Advt. no.: IA/Apr 2018/3861


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