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Module Units
- 1. Introduction
- 2. Why Is Life Insurance Necessary?
- 3. Who Needs Life Insurance?
- 4. Definition Of Risk
- 5. Classification Of Risk
- 6. Insurable Risk
- 7. Features Of Life Insurance Contracts
- 8. Life Insurance –Required Cover
- 9. What Should Be The Duration Of Your Policy?
- 10. How Much Cover Is Needed?
- 11. Life Insurance Plans & Riders
- 12. Term Plan
- 13. Whole Life Insurance
- 14. Endowment Life Insurance
- 15. Money Back Policy
- 16. Children’s Policy
- 17. Pension And Annuities
- 18. Need For Pension And Annuities
- 19. Unit-Linked Insurance Plans (ULIPs)
- 20. Types Of Unit-Linked Insurance Plans (ULIPs)
- 21. Charges, Fees And Deductions In ULIP
- 22. How Much Of The Premium Is Used To Purchase Units Of ULIP?
- 23. Pradhan Mantri Jyoti Bima Yojna (PMJJBY)
- 24. What Is A Rider?
- 25. Insurance Regulatory And Development Authority Of India (IRDAI)
- 26. Policyholders Interest Regulations, 2002
- 27. Rules Regarding Policyholders’ Servicing
- 28. Grievance Redressal Mechanism
- 29. Must Know Concept And Terms Part 1
- 30. Must Know Concept And Terms Part 2
- 31. Practical Matters
- 32. Accumulation / Payout Stage
- 33. When Should You Exit A Life Insurance Policy You Don’t Need Anymore?
- 34. When You Should Hold On To The Policy?
- 35. Conclusion
How Much Of The Premium Is Used To Purchase Units Of ULIP?
As discussed earlier, the total amount of premium paid for ULIPs, a part goes for insurance coverage and the rest goes to investing in market-linked funds. But how much of the premium is allocated towards the purchase of these units? Let us discuss that.
The total amount of premium paid is not used to buy units. Insurers allot units on the portion of the premium remaining after providing (read deducting) for various charges and fees. But the portion of the total premium used to buy units differs from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units. This practice brings you to the concept of “front loading” of charges.
Here, the power of compounding works on a lower amount which is invested in the markets so in the long run ULIPs have potential to create lower amounts of wealth than mutual funds wherein the charges are recovered from fund value on a daily basis rather than being front loaded.
What should one verify before signing the proposal for a ULIP?
You should look out or understand first the following before deciding to buy any ULIP policy: -
i. All types of charges applicable in the policy
ii. features and benefits
iii. Lock-in-period
iv. Liquidity rules / charges and payment on premature withdrawal
v. limitations and exclusions
vi. Lapsation policy and its consequences
vii. Benefit Illustration projecting benefits payable in two scenarios of 4% and 80% returns as prescribed by the life insurance council.
In a nutshell, ULIPs as a policy choice are good if you are comfortable paying high charges upfront in lieu of combined benefit of investment and insurance and commensurate market linked high returns.
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