Essential ULIP Investment Checklist for Investors

Posted on June 6, 2020July 2, 2022 by investinternals

ULIP or Unit Linked Insurance Plan is a product designed to offer insurance and investments opportunities for long term ULIP buyer. Ideally 10 years or more investment focus is required by a ULIP buyer to get profit or good returns from his investments. Essential ULIP investment checklist for investors provide better idea on its structure, management, cost, behavior etc..

Introduction – reason behind this article

I have found lots of friends invested in ULIP products complaining that, their invested money got reduced to half within couple of years! What happened?

Important thing to remember is, ULIP investments are not at all suitable for short term investments such as 1 to 5 years, but It should have at least 8 to 10 years focus to get benefited.

Essential ULIP investment checklist for investors

At the very first, investors must aware that two types of ULIP policies are available in the market, Type I and II. Type I ULIP pays either higher of sum assured or fund value as the death benefit. In the same time, TYPE II pays the sum assured as well as the fund value.

Read my Personal ULIP investment Case Study to know more about the must have activities and monitoring to leverage maximum profit from ULIP investments.

With this article of essential ULIP investment checklist, readers can do a self-assessment before selecting and investing to any ULIP policies.

Self assessment questions

Identify what is your investment objective with ULIP?
Is the ULIP product designed to meet these objectives?
What is your investment horizon? “Short” or “Long”? If “short”, don’t buy a ULIP product. It is designed in a way to get profit from long term investment. Remember, ULIP is a product for long term investors only.

Premium term and payment options

What is the minimum and maximum premium for the ULIP?
What are the premium payment options? Yearly, half yearly, quarterly or monthly?
Does the ULIP allow you to pay premium as per your option?
Years to pay premium without failures (most of the time this will be three years. However, it can be extended up to 5 years. depends on product nature)
What are the methods available to pay premiums?

Insurance protection and its charges

What is the policy type? (Identify Type 1 or 2 – details can be found above)
What is the level of insurance protection available with the product? (it can vary from 5 to 10 times of an annual premium)
What is the option to select your own insurance requirement with the ULIP?
What is the death benefit?
What are the critical illness covering in this insurance?
What are the accidental benefit in this insurance?
What are the exclusions in case of any critical illnesses?
What are the medical check-up requirements for insurance?
What are the procedures and requirements to claim the insurance?
What are the Mortality charges for this given insurance? (It can vary year to year from 1.31% per $1000 to 5% or more. Depends on company and how the ULIP policy designed. Ask them and clear the point.
Will the mortality charge increase year to year? If increase, what is the maximum percentage it will increase?

Fund options and performance

How many funds are available with this product where your money is going to invest. (In most case, this can be from Equity fund, balanced funds, capital protection funds etc. etc. and a number of funds with the ULIP will be informed by the consultant or the advisor)
What is the benchmark for this fund?
Get details of the fund performance at least for last 5 years against its bench mark.
Find out the fund performance for at least last 5 consecutive years and what is the benchmark performance in these years (Compare both, ULIP fund and Benchmark, to find out whether the fund beating or outperforming its benchmark continuously or constantly. If it is not performing well with its benchmark, don’t go for that policy)
How many free fund switching options available with the product in an year?
What is the cost for an additional switch if required?
How frequently you will receive the fund performance report and policy statements?

Surrender options and charges

What are the surrender options of this policy? (If you surrender the policy within the compulsory premium paying years, your entire money will be lost)
What are the procedures and requirements to surrender the policy?
What is the surrender charges for the years after compulsory premium paying years? This can be vary year to year after the compulsory premium paying years and entirely depends on the insurance company. Identify and confirm. Refer Question# 7 for details)

Premium allocation charges

What are the premium allocation charge for first year?
What is the charge for 2nd, 3rd, 4th and 5th years?
Is the PAC continuing after 5th years, what are those percentage?

Policy administration charges

Commonly, policy administration charge is reducing by selling our fund unit monthly. Most of the cases, this is not calculating in the percentage of yearly premium, but a fixed amount each month

Identify what is the Policy Administration charge per month
Ask if there is any increase in the future?

Fund management charges (FMC)

What are the monthly Fund Management Charges?
Do this charge vary to funds to fund?
What is the Fund Management Charge for various funds (this is helpful while switching the fund)
Will the FMC change? If change, what will be the maximum percentage in an year?

Top-up premium options

Find out the options to pay top-up premium in addition to the regular premium.
What is the allocation charges for top-up premium
What is the minimum and maximum top-up premium allowable

Miscellaneous charges

What are the miscellaneous charges other than mentioned above.
What is the policy redirection charges (This mean, you can pay your future premiums into a different selection of funds, as per your needs.
What are the partial withdrawal charges for year to year after completion of compulsory premium payment years.
What are the revival charges in case you are not paying premium after compulsory premium paying years and want to pay later.
What are the miscellaneous charges applicable to policy by levying for any alternations to the policy.
What are the possibility of free servicing requests and what are the charge for an additional servicing request per year.
If charges apply to any of the above-mentioned services, ask what is the charges? Specially, charges for premium revival, premium redirection, partial withdrawal
Ask there is any hidden costs than what given above. If any, get the clarification.

Loyalty units and bonuses

Find out if the ULIP is providing any Loyalty Units/Bonus to you
If yes, what is the percentage?
What year your ULIP start getting loyalty units/bonus

Miscellaneous facilities for investors

What are the tax benefits of the ULIP policy?
Ask for any free-look period available
What are the procedures to surrender and receive the benefits after the policy term.

Summary

Proper knowledge through research is must prior selecting an investment instrument like costly ULIP. I have provided the self-assessment questionnaire which enable you to collect 99.999% must have information before signing your first premium check to the ULIP company. I promise, this self-assessment will give you maximum success to select a good ULIP. Remember, proper contact to the proper place and personal required to receive correct information to assess as per the questionnaire.

As a thumb rule, find out the charges of Premium Allocation Charge, Policy Administration Charge, Fund Management Cost of a ULIP for first 10 years and compare the total amount with one-year premium amount you are paying. If the 10-year cost is more than 85% of 1-year premium amount, the ULIP can consider costly.

If you found this essential ULIP investment checklist helpful to identify and invest in a ULIP policy by analyzing and tracking all about the policy, help me by posting “Comments” to provide more beneficial and best articles on similar subjects.