ULIPs or Unit-linked insurance policies are non-traditional insurance products being offered by difference insurers. The product offers risk cover together with investment platform. So, with investment in capital market instruments, return as well as risk on account of investment in ULIP insurance policy is borne by the investor or the policyholder and is directly influenced by the capital market dynamics.
To suit the different aspects such as risk appetite, time horizon, liquidity parameter and investment objectives among others, insurers provide different funds with different risk profiles and return capabilities. The different funds offered include :-
Equity Funds: Such funds carry medium to high risk and invest primarily in company stocks. Investment in equity funds aims at capital appreciation.
Income, Fixed Income and Bond Funds : With medium risk such a fund invest in fixed income instruments such as government securities, corporate bonds etc.
Balanced Funds: Such funds invest in a mix of equity and fixed-income instruments and carry medium risk.
Cash Funds : With high liquidity and hence low risk, cash funds invest in money market instruments, bank deposits etc.
So, with investment in money and capital market instruments returns from the new ULIP policies are not guaranteed and are in fact realized either as gain or loss depending on the performance of the selected fund. Also, it must be noted that past performance of the fund does not give a true picture of the likely returns in the future period of time.
Some integral facets per se ULIPs
Does the entire premium amount allocated to buy fund units?
The premium amount paid in lieu of the policy is not fully invested to purchase fund units and it is the amount remaining after providing for all charges and fees that is allocated to purchase fund units. As a result, units in the selected fund in the ULIP plan hold a monetary value less than the total premium amount paid.
What is the benefit that accrues in case of risk during the policy term?
As per the terms and conditions of the policy, in case of risk to the life assured, beneficiaries are provided with either or both the sum assured and value of fund units.
What is the benefit payable on ULIP plan maturity?
On maturity of the Ulip plan, the policyholder is entitled to receive fund value together with any applicable bonus.
Is switching of investment in funds allowed in ULIP policy?
Depending on the particular policy attribute, some of the ULIP policies do come with the feature of switching option that allows the policyholder to switch his investment from one selected fund to another at his discretion. Further, some predefined number of effected switches are free of cost and fee is levied for any other switches made.
Is partial withdrawal or encashment from the ULIP policy possible?
By cancellation of some of the units in the policyholders portfolio, ULIPs allows for partial withdrawal or encashment.
What is the course in case of discontinuance of premium payment?
In case of premium discontinuation within three years of policy inception, insurance cover on the policy will cease to exist. In order to reinstate or revive the lapsed policy, insurers provide some time frame, and in a scenario when the policy is not reinstated during the allowed period, surrender value for the policy is paid either at the end of the allowed revival period or at the end of third policy anniversary whichever is later.
In the other case, when premium payment is discontinued after the term of three years, policy can be terminated by paying off the surrender value at the end of the allowed revival period. However, if opted, insurance company may continue to provide the insurance cover subjected to some fees.