The Insurance Regulatory and Development Authority (IRDA) has been the regulatory body of the insurance sector. It makes specific amends and changes rules for your well-being and the penetration of an insurance product in the market.
A dual-benefit product like a Unit Linked Insurance Plan (ULIP) has a part of the market for a long-time. After its launch in the insurance market, a ULIP product had gone down since it could not meet any of your expectations as an investor. The ULIP plan was known as the highest miss-sold product in the market, which eventually compromised its transparency. Due to the negative impact of the ULIP plan on its customers, the IRDA introduced a ‘benefit illustration’ to minimize the barrier between you and your insurer.
Before you purchase a ULIP policy and understand what a ULIP policy is, you should know what a benefit illustration is in detail. Therefore, let’s take a look below for better clarity:
The benefit illustration of ULIPs can be a yearly summary of the entire costs and benefits. The primary aim of a benefit illustration is to help you visualize the expenses, returns, surrender value, and so on at various timelines and under various scenarios. As an investor, you understand the basic rules and regulations that are issued by IRDA to know the benefit illustration and select the right ULIP policy for you. Hence, let’s go through the top five things you should note on a ULIP plan’s benefit illustration mentioned below:
- Charge structure
Another reason for the criticism of a ULIP policy was the high costs. However, the ULIP charges significantly reduced after the IRDA announced new changes under the ULIP policy. Today, you can purchase a ULIP policy at an affordable with the four most common charges given below:
- Policy administration charge
- Premium allocation charge
- Fund management charge
- Mortality charge
- Guaranteed & non-guaranteed benefit
Typically, your insurance company has to list down a clear distinction between the guaranteed and non-guaranteed benefits that are present under a ULIP policy. However, the non-guaranteed benefits can vary, which can be stated by your insurer in the benefit illustration clearly. Typically, the non-guaranteed benefits of a ULIP policy can be a part of the market-linked products.
- Company-issued illustration
While purchasing a ULIP policy, you may interact with your insurer for the first time. At the time of the purchase, your insurer might present to you with various ULIP options. Hence, you should see to it that your insurance provider states the features specifically of each ULIP policy. Typically, the features can be mentioned in your benefit illustration, which can be designed by your insurance company. As a buyer, you should ask for a company-issued illustration while purchasing a ULIP plan.
- Returns
Returns can be an essential part of your ULIP policy. Many of you might invest in a ULIP policy due to the sole motive of earning high returns. However, the returns garnered from a ULIP policy can depend on the choice of your fund as well as your risk appetite. For instance, if you choose to invest in equity funds of a ULIP policy due to high-risk appetite, you can receive high returns. When you invest in debt funds due to low-risk tolerance, you can get relatively low returns.
- Digital sales
Due to the advent of technology, many insurance companies have availed ULIP policies on their websites. Online ULIPs are the most convenient, affordable, and flexible form of investment. When you purchase a ULIP policy online, your insurer can mention the terms and conditions on the benefit illustration. Moreover, you can save the print of your customized benefit illustration after you receive an email from your insurer.
In a nutshell, benefit illustration can help you to bridge the gap between you and your insurer. After receiving the document, you should ensure you go through it carefully to understand every aspect of it. If you have any queries regarding the same, you should contact your financial expert without fail to avoid miss-interpretations of a ULIP policy and learn the ULIP benefits in detail.
