The insurance company deducts relevant charges from the premium paid by the ULIP policyholder and invests the net premium amount in fund(s) chosen by the policyholder. The policyholder can opt for any fund(s) of his choice–equity, debt or balanced.
The net asset value (NAV) of the fund reflects the net value of each unit of the fund scheme. On maturity or death of the policyholder, higher of the sum assured or fund value is paid.
Choice of funds
The insurance company offers for investment three types of funds to the policyholder, viz. equity, debt or balanced funds. Equity funds majorly invest in equity market and therefore the risk and returns associated with these funds is high. The debt funds invest in bonds, government securities and other debt instruments that offer relatively lower but stable returns with low risk. The balanced funds offer a middle path for those who are risk averse and yet expect good returns. The risks are moderate and the returns are decent in the case of balanced funds. Of course, the policyholder can switch over from one fund to another for a specified number of times in a policy year.
The insurer deducts specific charges from the premium paid by the policyholder and invests the balance amount in the fund of the policyholder’s choice. The charges deducted include premium allocation charges, mortality charges, fund management charges, administration charges, etc. The charges to be deducted and the periodicity of the charges depend on the terms of the policy and are specified in the policy document.
Withdrawals and top-ups
ULIPs allow a policyholder partial withdrawal of the accrued fund value without disturbing the continuity of the plan. Such withdrawals can be made after the first five years of the plan. Also, if a ULIP policyholder has surplus funds and if he/she so desires, he/she can make additional investments in the plan by way of top-up premiums. These top-up premiums are in addition to the regular premium.