What should one verify before signing the proposal for ULIPs?

ULIPs are where financial security and investing meet. It is a market linked life insurance plan that provides a wealth creation opportunity and life insurance cover. Hence, it offers you a wide range of benefits between insurance coverage and investment returns.

You might have some understanding of how they work and what advantages you can have by investing in them. But do you feel confident enough with what you know about them so far to invest?  If you don’t there may be a good enough reason for it. With ULIPs, there is always more you need to know before you can feel sure about investing. Read more to find out:

When you buy the policy, there are lot of charges involved. Some of them are extremely obvious while others don’t often catch the eye of the buyer. Here are a few ULIP charges that you should pay attention to while buying a ULIP plan.

  • Premium allocation charges

Whenever you purchase a ULIP plan, the insurer spends a certain amount of money to give the proper service that you are demanding. This includes taking care of medical expenses, distributor fees, underwriting expenses, etc. Now, once you have bought the policy, these charges are deducted from your premium payment. One of them is the charge of allocating the premium between insurance and investment itself.

  • Mortality charges

Any insurance provider takes a certain level of risk when they offer life coverage. This risk is based on factors that affect your mortality. These factors include age, state of health etc. To account for these factors, insurance providers take mortality charges when selling ULIPs.

  • Fund management fees

You may know a lot about investment through online research, but with ULIPs you will always need professional help. Knowing this, ULIP providers offer fund management with your policy. However, this service is not free of cost. This fund management requires a fee. This fee covers overhead cost, operation cost, and much more.

  • Discontinuance charges

If you decide that you do not want to stay with the policy, you can discontinue it. Discontinuing the policy means that you would have to pay a surrender charge.

  • Fund-switching charges

As you may know, ULIPs give policyholders a great deal of flexibility with investment options. More precisely, they allow individuals to change ULIP funds when they choose. However, there is a limit on how many times you can make a switch for free. If you go above the limit, you will have to pay a fund-switching charge.

Limitations and exclusions

ULIPs offer a wide range of benefits. However, there is a limit to even what they do. It is smart for you to know what these limits are. Otherwise, you might end up buying the policy and expecting a benefit that it does not offer in the first place. For example, a ULIP plan is considered null and void if the policyholder commits suicide before completing a year of buying the policy.

Policy lapse and its effects

With any type of insurance policy, the simplest fact is that it covers you as long as you keep paying your premiums. However, what happens if you miss a premium payment. Simply put, you lose your coverage. In insurance terms, your policy lapses once you miss a premium payment. However, what happens once a ULIP policy lapses. At first, the insurance provider will give you a grace period in which you can pay the premium and restore your policy. If you miss this, your policy will be deactivated.