ULIP

IRM Session 12

ULIPs Features, Benefits,

Revised ULIP Guidelines by IRDA,
Some Latest ULIP Products,
ULIP vs. Mutual Fund A Comparison.

ULIPs : An Introduction

A combination of insurance protection with

investments.
A part of the premium goes towards providing life
cover. The residual portion is invested in a fund
which in turn invests in stocks or bonds.
The value of investments alters with the
performance of the underlying fund opted.
The protection element and the savings element
are distinguishable, and hence managed
according to the specific needs.
ULIP offers unprecedented flexibility and
transparency.

ULIPs : Things to Know

A Unit stands for
a portion or a
part of the
underlying
segregated unit
linked Fund.

Net Asset Value

(NAV) is the
value per unit
calculated in
rupees.

Fund Value is the

product of the
total number of
units under the
policy and the
NAV.

ULIPs : How does it

work?
When you decide the amount of premium to be paid and the amount of
life cover you want from the ULIP, the insurer deducts some portion of the
ULIP premium upfront.
This portion is known as the Premium Allocation charge, and varies
from product to product. The rest of the premium is invested in the fund
or mixture of funds chosen by you.
Mortality charges and Administration charges are thereafter
deducted on a periodic (mostly monthly) basis by cancellation of units,
whereas the ULIP Fund Management Charges are adjusted from NAV
on a daily basis.
Since the fund of your choice has an underlying investment either in
equity or debt or a combination of the two your fund value will
reflect the performance of the underlying asset classes.
At the time of maturity, you are entitled to receive the Fund Value as at
the time of maturity.

ULIP - Premium
Breakup

Objectives of ULIPs
Wealth
Creation

Child
Education

Retiremen
t Planning

Health
Solutions

Why ULIPs?
Flexibility
Flexibility to
change your life
cover
Flexibility to
change premium
amount
Flexibility to opt for
a rider
Flexibility to
choose your fund
option with
switchover

Transparency
Benefit illustration
Free look period
Net asset value
(NAV)

Tax Benefits
80 C
80 D
10 (10D)

Some Common ULIP

Charges
Policy administration charges

These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing
and maintaining the life insurance policy like paperwork , work force etc.

Premium allocation charges

These charges are deducted upfront from the premium paid by the client. These charges account for
the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals &
expenses related to distributor fees. After these charges are deducted the money gets invested in the
chosen fund.

Mortality charges

Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The
expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum
assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly
basis.

Fund management charges

A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or
money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund
management charge (FMC). The FMC varies from fund to fund even within the same insurance company
depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher
FMC

Some Other ULIP

Charges

Some
Other
ULIP
Charge
s

RIDERS
SWITCHOV
ER
TOP UP
SURRENDE
R

ULIPs : New Guidelines

Lock in for Five Years and Premium Payment Term: Minimum
lock-in period has been revised from the current 3 years to 5 years
and barring single premium policies, the minimum payment term
has also been raised to 5.

Increase in Minimum Sum Assured: The minimum sum assured

multiple has been increased to 10 times for age at entry below 45
years and 7 times for age at entry above 45 years. At no time can
the sum assured be less than 105 per cent of total premium paid
including top ups. All top ups also must have life insurance cover
built into them.

Net Reduction in Yield for Every Year from Year 5: This new
guideline stipulates the maximum net reduction in yield every year
from 5th year. It is primarily an extension of the earlier stipulation of
maximum net reduction in yield of 3% for policy term up to 10 years
and 2.25% for policy term above 10 years.

ULIPs : New Guidelines

Cap on Discontinuance Charge: IRDA has introduced a
cap on surrender charge, now termed as policy
discontinuance charge. This allows life insurers to charge
only a small penalty on early surrender of policy.

Modifications in Unit Linked Pension Products :

Partial withdrawals in Unit Linked Pension products will not
be allowed. On maturity, one third of the corpus could be
taken as lump sum and rest must be used for buying
annuities. IRDA has also made it mandatory that all unit
linked pension products must offer minimum guaranteed
return which would be specified by IRDA from time to time.

ULIP vs. Mutual Fund A Comparison.

ULIPs

Mutual Funds

Life Cover

Available

Not available

Investment amounts

Determined by the investor

and can be modified as well

Minimum investment
amounts are determined by
the fund house

Expenses

No upper limits, expenses

determined by the
insurance company

Upper limits for expenses

chargeable to investors
have been set by the
regulator

Portfolio disclosure
Not mandatory*
Modifying asset allocation
Tax benefits

Generally permitted for free

or at a nominal cost
Section 80C benefits are
available on all ULIP
investments

Quarterly disclosures are

mandatory
Entry/exit loads have to be
borne by the investor
Section 80C benefits are
available only on
investments in tax-saving
funds