Insurance Uncovered

Life insurance can be divided into savings and protection. Within the savings category, customers have the option to choose from traditional or unit linked products or ULIPs — popularly known as new age products. Let us try and understand them.

What are ULIPs?

A unit linked insurance plan (ULIP) is a life insurance product that fulfils a customer’s need to provide financial security to the family in the form of a life cover. It also offers a route to build a savings pool to achieve long-term financial goals. Customers are given a life cover that is equivalent to 10 times the annual premium.

Can I change my asset allocation and when?

Customers can change their asset allocation any time during the year. This is called ‘switching’. Customers can switch or alter their asset allocation from debt to equity or vice versa.

What are the charges that I have to incur?

ULIPs are transparent products and the individual can view all the chargesto see. The commonly applied charges are:

1. Policy administration – deducted on a monthly basis

2. Premium allocation – deducted from the premium paid

3. Mortality charges – for providing a life cover

4. Fund management charges (FMC) – FMC is the fee for managing the assets on behalf of the policyholder

It is mandatory for insurance companies to provide a benefit illustration to every individual. This clearly shows the various charges applicable for the entire duration of the policy.

What are the tax benefits?

ULIPs are tax-efficient; not only does the premium paid qualify for tax deduction under Section 80C, the maturity proceeds too are exempted from tax under Section 10(10D), since ULIPs offer a life cover of 10 times the annual premium. ULIPs have a lock-in period of five years, post-expiry of this period customers can make tax-free partial withdrawals, if required, without impacting the life cover component.

The writer is Chief – Sales and Distribution, ICICI Prudential Life

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