Purchasing a life insurance plan can be overwhelming. There are multiple insurance products in the market, like a Unit Linked Insurance Plan (ULIP), term insurance, endowment policies, and so forth. However, a ULIP plan attracts a lot of buyers due to its dual-benefits of investment and insurance.
Years ago, a ULIP plan had a negative reputation in the market due to its high costs and consistent miss-selling of the product. However, the Insurance Regulatory and Development Authority (IRDA) made new rules to reduce costs and miss-selling by the insurance agents. Today, the IRDA has ensured the transparency of a ULIP investment with the compulsion of a ‘benefit illustration.’
Before purchasing a ULIP policy, let’s begin by understanding the meaning of a benefit illustration in detail:
A benefit illustration is a document provided with a ULIP policy. It highlights the costs and benefits applicable under a ULIP plan. With a benefit illustration, you can analyse how ULIP charges impact your corpus every year. Under a ULIP policy, you can find the following common costs:
- Policy administration charge
- Premium allocation charge
- Fund management charge
- Mortality charge
When you purchase a ULIP policy, you should assume that your fund grows every year at a specific rate. Let’s assume that your regulator has allowed your insurer to assume 4% and 8%, respectively. Now, you would get two separate illustrations. Since costs would be mentioned in both these illustrations, you might have an idea about how much money should be invested, how much money is deducted in the charges, and how much money remains after all the deductions.
Insurance companies have applied these guidelines made by IRDA, which came into effect from 1 December 2019. As a policyholder, you should be aware of these rules to understand the benefit illustration. Let’s take a look below to understand how to read the benefit illustration of your ULIP policy:
- Look for the company illustrations
Many insurers would present you with a company illustration on the first time they interact with you regarding the ULIP policy. The benefit illustration would usually consist of all the features of a ULIP policy. If your insurer doesn’t offer a benefit illustration, ask for it yourself.
- Read the illustrations in the policy
At the time of purchase, your insurer would attach the benefit illustration along with your ULIP policy. A benefit illustration needs to be signed by you, your insurer, and a third party, if any. After you purchase the ULIP policy, you have 15 days in your hand to go through the policy document. These 15 days offered by your insurer are known as the free lock-in period.
- Check the digital sales figures
A ULIP policy can be purchased online as well as offline. An online ULIP investment is transparent, convenient, and time-saving. When you purchase a ULIP policy online, your insurer would specify all the terms and conditions before directing you to the application form. As a policyholder, you can save the benefit illustration page.
- Ask for the guaranteed & non-guaranteed benefit
When you purchase a ULIP policy, your insurer would usually help you to distinguish the guaranteed and non-guaranteed benefits under a ULIP policy. The non-guaranteed benefit might vary, which also should be specified. Under a ULIP policy, insurers might specify the non-guaranteed element of a ULIP policy.
To sum up, the benefit illustration of a ULIP helps you to make informed decisions. When an insurer produces a benefit illustration in front of you, see to it that you take your time in going through it carefully. Talk to your family and discuss whether or not you wish to go ahead with the ULIP policy. Consult a financial expert or your insurer in case you are still unclear about the terms and conditions of a ULIP policy.
