Investment Plans

Plans allow systematic enhancement of wealth with insurance

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Important Facts to Know About Investment Linked Insurance

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A popular format of investment linked insurance plans is Unit Linked Insurance Plan (ULIP). Such investment insurance plans are intended for those who want to enjoy the benefits of insurance and investment by buying a single policy. An alternate way to achieve the same is to buy an investment plan and an insurance cover separately.

In an investment linked plan, the premiums you pay can be invested in a variety of funds depending upon your choice. However, the entire Premium that you pay is not invested as a part of it is used for meeting the various expenses which include:

Administration charges-

Insurance companies charge monthly fees for administering the policy. The charges are deducted from your investment by canceling units proportionately.

Fund management charges-

It is usually a fixed percentage of the fund value and depends on the structure of fund in terms of exposure to equity and debt. Debt funds carry lower fund management charges. The NAV of the fund is declared after accounting for expense related to managing the fund.

Premium allocation charges-

These are calculated as a fixed percentage of the premium paid. Usually the charges are higher in the initial years after you buy the policy. The charges depend on multiple factors like premium payment frequency, amount of payment and mode or premium payment as well.

Cost of insurance cover or mortality charges-

Insurance companies deduct a certain part of your premium to cover the cost of providing insurance cover which is also called mortality charge. The mortality charge would depend on the age of the Insured and the amount of cover.

Who should Invest in an Investment Linked Plan

Anyone can invest in Investment Insurance Plan after considering their Risk profile and investment horizon.

Monitor your Investment-

You can closely monitor your investment portfolio. Depending upon your changing risk profile and return expectations you can switch your investments into different funds.

Investment Horizon -

Medium to Long Term -If you are looking to generate returns better than what is offered by typical debt market with an investment linked plan it is essential that you have a medium to long term investment horizon.

Investments that are dynamic to match your changing risk profile -

Many investment plans allow you to switch between funds which help you gain your desired exposure in equities. If at a point in time you feel there is an investment risk in equity you can choose to shift your investment in a fund that has no exposure to equities.

What if you want to surrender the policy?

If you need to encash your investments prematurely surrender charges will apply. The surrender charges depend upon how many years you have remained invested in the policy. In case you remain invested for minimum pre determined duration surrender charges do not apply.