Aditya Birla Sun Life Insurance Company Limited
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It took just one microscopic virus to derail entire nations' economies, proving just how easily life can completely change its course. As millions lost their jobs or were forced to take on salary cuts, having one's finances secured in savings and market instruments served monumental in shaping the quality of life. In times of unforeseen crisis, it has never been more clear that financial security is a necessity for everybody. Securing the protection of yourself and your loved ones is always a great idea, no matter what the future holds.
Through the protection from insurance, and returns from market instruments, a unit-linked insurance plan's intended purpose is to serve as that security blanket that can keep you and your loved ones safe, especially when life throws curveballs. Financial instruments like ULIPs serve to demonstrate that while a regular income can supplement your lifestyle, growing wealth can sustain it over the long term. Let's delve into how ULIPs work and what you can expect if you choose to buy one.
A unit-linked insurance plan or ULIP is a new-age insurance policy that offers the benefits of investing in market while giving you the protection of a life insurance plan. Hence, while you can grow your wealth gradually by investing in funds of your choosing through your ULIP plan, you are insured for life which can ensure your family will be protected in your absence. One of the best ways to close the gap between inflation and income is to invest in market instruments wisely.
By giving you the option to invest in all kinds of market-linked funds like equity and debt funds in a ratio that works with your preference, ULIPs can help you achieve your financial goals. Be it funding a marriage, paying for higher education, or planning for retirement; by clarifying what your financial goals are, you can work towards achieving them with your ULIPs. But how do these investment vehicles work?
Every investment, including ULIP premiums, has charges that are associated with them. The investment-related component of ULIPs also has costs associated with it. These ULIP charges can be divided into several types and are deducted out of the premium invested or the fund value in your ULIP's portfolio. When you pay your monthly premium, it is automatically used for these charges, and the costs remain relatively similar across policies. ULIPs can charge expenses under the following categories:
So with all of the different charges stated above, you can get a clear idea of the purpose of these extra costs and where your premiums are going. When it comes to how your premium is utilised when you invest in a ULIP, here's a rough sketch. When your premiums are paid towards a unit-linked insurance plan, the assumption is that part of it is invested in market instruments and the remainder in your life insurance policy.
This is not exactly true. Instead, the majority of your premium goes directly to the funds you have chosen to invest it in. You always have the option to switch between funds, provided you know of associated costs with this switching, to choose funds that give you the returns you are looking for. But what about the remainder of your ULIP premiums?
While the majority is invested directly into your funds, the remainder of your ULIP premiums goes into the costs stated above along with an added charge going toward your life insurance. These charges include the premium allocation cost, policy administration charges, fund management charges and other miscellaneous expenses. As specified above, some ULIP plans may also impose fund switching charges after a certain limit, partial withdrawal charges, and premature surrender charges. Ensure you are well aware of these costs at the time of investing.
If your premiums are going toward market-linked funds and added costs, where do you get your life insurance from? The answer is within the added charges.
Usually, your life insurance premium is part of the added charges in your ULIP. It is just comparatively smaller than the amount of your premium that is invested in funds. Think of mortality charges; a charge associated with the life coverage that is provided to you from your policy. This is one of the ‘added costs' but is critical since it depends on your age, policy term, and the sum that was assured to you from your policy.
The insurance cover you are expected to get from your policy is likely ten times the gross annual amount of premiums you paid subject to the terms and conditions of your policy. In case the policyholder passes away prematurely, his/her nominees can receive the death benefit as detailed under the policy. Note that some insurers also offer unit-linked insurance plans that let you receive your mortality charges back at the time of maturity. This feature is known as the return of the mortality charge.
By investing in ULIPs, you can achieve your financial goals and enjoy a fulfilling life. These products are intended to give you the best of both worlds: the protection of a life cover along with the growth from market returns. Be mindful of all the costs associated with your plan when comparing policies.
References
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Buy ₹1 Crore Term Insurance at Just ₹576/month*
Exclusively For Salaried Individuals
4 Plan Options
Life Cover upto 70 years
Optional Accelerated Critical Illness benefit
Inbuilt Terminal Illness Benefit
Life Cover
₹1 crore
Premium:
₹576/month*
Guaranteed returns after a month¹
1https://www.newindianexpress.com/business/marketing/2021/aug/24/understanding-how-your-ulip-premium-is-utilised-2349065.html
2https://www.canarahsbclife.com/blog/ulip/how-is-your-unit-linked-insurance-plan-premium-
utilised.html#:~:text=For%20ULIPs%2C%20as%20is%20the,well%20as%20an%20investment%20instrument.
3https://www.aegonlife.com/insurance-investment-knowledge/ulip-premiums-money-invested/
IN ULIP, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY POLICYHOLDER.
ABSLI Salaried Term Plan (UIN:109N141V04) is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder’s selection of Plan Option 2 (Life Cover with ROP) this product shall be a non-linked non-participating individual savings life insurance plan.
*LI Age 21, Male, Non Smoker, Option 1: Life Cover, PPT: Regular Pay, SA: ₹ 1 Cr., PT: 10 years, Annual Premium: ₹ 6400/- ( which is ₹ 576/month) Premium exclusive of GST. On death, 1 Cr SA is paid and the policy terminates.
ADV/4/22-23/167