The performance of various ULIPs, with reference to growth of units, depends on market forces as also the efficient management of investments by the appointed fund managers. Due to the ups and downs in the market based on demand/supply and the state of the economy, the returns get averaged – coupled with life cover, the returns on the units invested may be considered to be modest.
While undertaking comparative study to find the best ULIP plan, we came across a number of dissatisfied clients of various ULIPs who felt that the plans had a variety of exorbitant charges, thereby severely negating/offsetting the growth that might have pushed the NAV that s NET Asset Value during the performance of the fund. So, in terms of performance, the fund(s) may be doing well but when it comes to passing on the benefits to consumers, the insurance companies are not doing a great job – instead, they deduct their management charges against NAV or on the premium paid and dent the outcome of the growth. This has led to a situation where there are no repeat customers for this type of investment. Not surprisingly, we came across a couple of funds for which the overall feedback was negative. So, it is very important for you to know all the associated ULIP charges.
What Does IRDAI Have to Say?
As per Insurance Regulatory and Development Authority of India (IRDAI), with effect from 1 September 2010, the following are the restrictions on ULIP policies:
- The lock-in period is five years (earlier it was three years)
- Except in the case of single-premium payment plans, premiums have to be paid for a minimum of
Hence, we need to know the advantages of ULIP as well as the limitations of ULIP so that we make a informed decision and do not feel cheated.
Advantages of ULIP
- ULIP is a two-in-one plan in terms of providing the twin benefits of life insurance plus savings.
- It is a relatively transparent product with no hidden charges.
- There are multiple fund options to choose from.
- You avoid the everyday hassle of managing stocks.
- The surrender charges are relatively low.
- Some of the policies offer partial withdrawals without breaking the units, ensuring liquidity.
- There is sufficient flexibility to increase/decrease the base sum assured.
- Initially, the various charges will appear costlier. But it has to be remembered that these charges look costly as viewed within the lock-in period (short term). The charges tend to taper off post the lock-in period.
Limitations of ULIP:
- The mortality charges that are levied have no fixed fee but are based on a lot of other factors (such as age of the insured, cost of insurance, and applicable sum assured).
- Due to the nature of the unit-linked funds, only a handful of companies can guarantee the price of the units. This product is different from other traditional insurance products, being subject to market and other risk-based factors.
- Very few insurance companies offer a discount on the premium, and that too is available only when the policy is purchased directly from the website of the company concerned; this may prove to be a deterrent in attracting prospective customers.
- Charges such as premium allocation, policy administration and fund management offset any growth that is achieved during the short-term period.