Dear Readers, this article will help you in choosing the best
of the best ULIP Regular premium plans available in the industry as of now. The
parameters needs to be considered while choosing a ULIP are explained below so
that you should not be miss-leaded or cheated by any insurance agent or sales
person. Also, I advise all my readers to have an eye on all these parameters
based on the information provided on the company printed brochure only, as the
chances of agents or sales people printing their own sales support promotional
materials which normally talks only about the benefits but not the demerits of
the product.
Basic
Parameters to Compare:
1. Premium
Allocation Charges:
This is the very basic thing to be considered as the premium
allocation charges in different plans vary from 2% to 100% of the first
premium. There are plans of few companies where they project that the premium
allocation charge is nil, but the fact is they would be charging equal amount
or more than that through policy administration charges or initial management
charges or surrender charges. Therefore you should be more cautious about such
products where sales people claim that the premium allocation charges are nil.
Premium allocation charges are levied on an insurance product
primarily to cover the cost involved in paying the commission to agents or
sales people and the huge marketing expenses involved in acquiring every
insurance policy. Normally an Insurance agent or a broker or a sales person
earn between 2% to 80% of the first year premium as his/her part of commission
apart from the regular renewal commission he receives thereafter.
The reason for any insurance company to take out so much of
money from the hard-earned investment of an innocent customer is
"Competition". Yes the competition in Insurance industry is
completely pushing away the ethical side of the insurance business and today
almost 60-80% of the insurance business is been done in unethical way. Indian
Insurance market is completely driven by sales people as buying insurance still
remain as a luxury than a very basic need for Indians. Even after 10 years of
privatization of insurance industry there is very little effort been put forth
to promote term insurance plans as the profit to a insurance company by selling
term insurance plans is very less more than that selling a term insurance plan
is certainly an uncertain commitment for the insurance companies.
Therefore, I advise all my readers to be very cautious while
comparing the premium allocation charges levied on different products of
different companies and As I mentioned earlier the premium allocation of ULIPs
starts from as low as 2%.
2. Policy
administration charges:
Policy administration charges are those charges that the
company takes out from the fund value available in customers account to meet
various administrative expenses incurred while managing the policy during the
whole tenure of the policy. This charge is been deducted normally on a monthly
basis. This charge is not covered under premium allocation charges or the fund
management expenses. Most of the time this charge is been deducted as a
percentage of the fund value or a fixed amount or a percentage of the premium
or a percentage of sum-assured.
Policy administration charges in most of the products ranges
from Rs 30/month to Rs 200/month. But in few plans it goes up to 40-50% of the
first year premium, up to 35% of the second and third premium and up to 10% of
the premium paid thereafter.
Normally this charge is levied at the beginning of each
policy month from the policy fund by canceling units for equivalent amount.
This could be flat throughout the term of the policy or vary at a pre-determined
rate. Normally these charges are higher during the first few years and can come
down to zero latter.
3. Fund
Management Charges (FMC)
Fund Management Charge is levied as a percentage of the value
of assets and shall be appropriated by adjusting the Net Asset Value. This is a
charge levied at the time of computation of NAV, which is usually done on daily
basis.
If the fund management charge in a particular fund is 2% pa
then the average fund management charge per day would be 2/total number trading
days in a year. Fund management charges vary from 0.25% to 2.5% as it depends
on different companies, depend on different products, and depend on different
funds.
Normally fund management charges in ULIPs are comparatively
lesser than the fund management charges levied by mutual funds.
4.
Surrender Charges
Surrender Charges are levied on the total fund value
available at the time of surrender of insurance contract or at the time of
partial withdrawal before the planned maturity date. This charge is usually expressed
either as a percentage of the fund or as a percentage of the annualized
premiums. Some companies do not charge anything after first three years but
some companies charge till the end of 10th year or before till the date which
is any time before the maturity. Now, IRDA has made it compulsory for every
ULIP plan to have 5 year minimum lock in and a customer can take out money from
his ULIP account only after completion of the 5th policy year. The surrender
charges levied on a ULIP plan normally varies from 0% to 70% depends on the
product and the tenure chosen by the customer. But few insurance companies have
designed such plans where the premium allocation and policy administration
charges are very nominal as they take a bigger chunk of the fund value during
the time of surrender. In this case, insurance companies normally makes money
from the fund management charges if a customer stays with the fund for long
time and from the surrender charges if he withdraw from the fund before the
maturity date.
5.
Switching Charges
These charges are levied when you shift your investment from
one fund to another during the time of market crash or economic imbalance to
protect your fund value. The charge will be usually a flat amount per each
switch and it is always nominal in almost all the companies.
6.
Mortality charges
Mortality charge is the cost of life insurance cover. This
will be levied either by cancellation of units or by debiting the premium but
not both. Mortality charge may be levied at the beginning of every policy
month. The method of computation will be explicitly specified in the policy
document.
I am sure that all of you will be able to choose the best ULIP Plans for
yourself if you cautiously compare all the above mentioned parameters.
Source: http://blogs.rediff.com/bestulipinsurancepolicy/2016/07/02/ritikashah11998-38/
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