Net yield means returns after all expenses.<\/strong><\/p>\nDoes all Benefit Illustration have only 6% & 10% returns?<\/p>\n
Yes, the insurance regulator has made it mandatory for agents to share the benefit illustration, assuming 6% and 10% growth, with policyholders.<\/strong> They cannot and should not alter this percentage return.<\/p>\nAlso, with effect from 1st January 2010 the insurance regulator has capped the difference between gross and net yield based on term of ULIP. For ULIP with term less than 10 years the cap is at 3% while for ULIP with term of 10 or more years the cap is 2.25%.<\/strong><\/p>\nBenefit Illustration Glossary and Charges:<\/h2>\n
Policy Year<\/strong> \u2013 This shows the number of Policy years from start of your ULIP<\/p>\nAnnualized Premium<\/strong> \u2013 This is the annual premium the policy holder needs to pay every year. You should check if you can alter the premium or if there are any losses if you skip any premium? Generally there are some bonus additions if you are regular with your premium.<\/p>\nPremium allocation charge (PAC)<\/strong> \u2013 It\u2019s a front end cost and probably the one which worst effects the returns. It is generally stated as a percentage of annual premiums and changes over the term (though at times it may be a flat charge too). Initial years have more PAC than later years<\/strong>. You should find out what is the Premium allocation charge for any top up premiums you pay in future?<\/p>\nAmount Available for investment (out of premium)<\/strong> \u2013 This is the amount which would be invested and is equal to Annualized Premium minus Premium allocation charge.<\/p>\nMortality Charge<\/strong> \u2013 This is the cost that you pay for your insurance cover. It would vary depending on policyholder’s age, sum assured and policy term. For ULIPs which pay higher of sum assured or fund value on death, Mortality Charge falls with time while ULIP which pays both the sum assured and fund value, it remains constant.<\/p>\nService tax<\/strong> \u2013 This is 10.3% tax that you pay to the government for services offered by ULIPs. It was levied on Premium allocation charge, Policy administration charge, Guarantee Charge, Mortality Charge, Rider Charges and Fund management charge but Finance Minister has given some relief here in Budget 2010. Now service tax would only be levied on Fund management charge. The illustrations still show the old service tax but it would soon be updated.<\/p>\nPolicy Administration Charge<\/strong> \u2013 It can be fixed or variable (as % of fund value) and is deducted from the fund value each month as long as the policy runs.<\/p>\nFund Management Charge<\/strong> \u2013 The most important charge of Ulips. Deducted as a percentage from the fund value. Impact grows over the years as the fund value rises. It could be as high as 2.5% in older plans but now has been capped at 1.35%<\/strong><\/p>\nGuarantee Charge<\/strong> \u2013 This is charge you pay for getting a guaranteed return (For e.g. if a ULIP promises 170% after 10 years, you need to pay a guarantee charge for the same). It can vary depending on the kind of guarantee and also has not been capped by IRDA. This is usually 0.25% to 0.5%.<\/p>\nAddition to Fund (if any) \/ Bonus<\/strong> \u2013 ULIP is a long term product and to keep policy holders invested for long term, they generally have bonuses or other incentive structure built into them for e.g. You may get additions based on regular payment of Premium.<\/p>\nFund before FMC<\/strong> \u2013 This is the underlying fund value before deduction of Fund management charges.<\/p>\nFund at End<\/strong> \u2013 Fund value at year-end after deducting all the charges and taking growth into account.<\/p>\nSurrender value<\/strong> \u2013 Paid to policyholder when he exits the plan. The exit can be made any time, but the value is paid only after three years. In some Ulips, the surrender charge is expressed as a percentage of the first year\u2019s premium, varying with the year of exit. With the new rule there would be no surrender charges after 5th year of policy.<\/p>\nDeath Benefit<\/strong> \u2013 Nominee gets this on insured\u2019s death. Type I ULIP pays either sum assured or fund value while Type II pays both. Choose a sum assured that optimizes protection and investment.<\/p>\nOther than above stated there can be additional charges under the following headers.<\/strong><\/p>\nRider charges<\/strong> – Riders are add-on policies that give additional insurance benefits apart from the base plan. The charges are generally low compared to the benefits added. Some of the popular riders are related to accident cover, disability cover, waiver of premium, and critical illness cover.<\/p>\nSwitching charges<\/strong> – Switching is the shifting of our investment from one fund to another. This is done to preserve our profits or to protect our principle. During market highs or the beginning of a downturn a switch from equity oriented funds to debt oriented funds will protect the policy holder’s profits. The funds can be switched back after the market falls or is in the recovery phase.<\/p>\nSimilarly towards the maturity of the plan a gradual shifting of the funds can be done towards the debt funds to preserve capital.<\/p>\n
Switching is a market timing activity and has to be done with knowledge and skills. It is advisable for a normal investor to seek the support of experts in using the switch option.<\/p>\n
ULIPs generally offer a number of switches ranging from 4 to 12 for free in a year. Any switches above this will be charged.<\/p>\n
Partial Withdrawal charges<\/strong> – ULIPs generally allow withdrawal from our funds after the stipulated 3 years. However there may be charges if there is request for more than one withdrawal in a year. Some plans may restrict the amount of withdrawal to a percentage of the available fund (say 20 per cent of the fund value).<\/p>\nTo conclude:<\/h2>\n
I hope this post helps you in better understanding “the benefit illustration table” for ULIPs and hence make more informed decisions.<\/p>\n","protected":false},"excerpt":{"rendered":"
Insurance in itself is a complex product and ULIPs (Unit Linked Insurance Plans) make them even more complex. All the ULIPs are different with different features, different clauses and bonuses & expenses structure which at times is even difficult for an expert to comprehend. Infact I remember seeing ULIP benefit illustration for the first time […]<\/p>\n","protected":false},"author":1,"featured_media":4731,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[5,103],"tags":[2807,38,40,2822],"uagb_featured_image_src":{"full":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",660,296,false],"thumbnail":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs-150x150.png",150,150,true],"medium":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs-300x134.png",300,134,true],"medium_large":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",660,296,false],"large":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",660,296,false],"1536x1536":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",660,296,false],"2048x2048":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",660,296,false],"yarpp-thumbnail":["https:\/\/www.apnaplan.com\/wp-content\/uploads\/2010\/07\/Understanding-Benefit-Illustration-charges-of-ULIPs.png",120,54,false]},"uagb_author_info":{"display_name":"Amit","author_link":"https:\/\/www.apnaplan.com\/author\/admin\/"},"uagb_comment_info":4,"uagb_excerpt":"Insurance in itself is a complex product and ULIPs (Unit Linked Insurance Plans) make them even more complex. All the ULIPs are different with different features, different clauses and bonuses & expenses structure which at times is even difficult for an expert to comprehend. Infact I remember seeing ULIP benefit illustration for the first time…","_links":{"self":[{"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/posts\/349"}],"collection":[{"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/comments?post=349"}],"version-history":[{"count":0,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/posts\/349\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/media\/4731"}],"wp:attachment":[{"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/media?parent=349"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/categories?post=349"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.apnaplan.com\/wp-json\/wp\/v2\/tags?post=349"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}