Unit linked insurance plan (ULIP) is a mix product which provides both insurance and investment option. It provides life insurance and also invests your money into various market-linked assets for meeting long-term goals such as funding children’s education and marriage, for building one’s own home and saving for own retirement, etc.
Ulips have become a long-term investment option now. The new guidelines introduced in 2010 have increased the lock-in period from 3 years to 5 years and also make it mandatory to regularly pay premium till the end of the chosen policy term, if one wants to continue till maturity.
The Insurance Regulatory and Development Authority of India (IRDAI) has mandated all life insurance companies to help the buyer to take a look at how the premium of ULIP would get invested, how and what charges would be deducted from this premium and how the investment will grow over the years. This whole process is known as ‘Benefit Illustration’ (BI).
Now, at the time of buying an ULIP, you must ask the sales person to generate Benefit Illustration according to your age, planned premium and term.
The first column of this illustration would preferably show the premium amount while the next column would show the ‘premium allocation charge’. Further column shows the remaining amount available for investment. Nearly 5 to 8 different fund options are available for investing with varying equity and debt exposure levels. Other columns shows various other charges, such as policy administration charge, fund management charge, mortality charge and service tax, that get deducted from the premium. The last three columns are important showing the fund value, surrender value and death benefit at the end of each year.
The Net Yield can be compared across Ulips for a better comparison. The higher the Ulip charges are, the lower will be the Net Yield.Net Yield is the rate of return on investment after subtracting all expenses, such as policy administration charge, fund management charge, mortality charge and service tax.