Common Terminology Used in ULIPs

ULIP

Abbreviation for Unit Linked Insurance Plan

Premium

The amount decided to invest in the policy at a chosen frequency. This includes all charges, investment money and the insurance costs.

Unit Fund

After deducting the expenses of risk cover, operational and administrative charges and maintenance costs, the money left from the premium is pooled together to form a Unit Fund.

Unit

The share of policyholders in this fund is divided in number of units.  The policyholder can decide whether they want to invest their portion in bonds, or stocks. They can also liquidate their units for the mortality charges in case of inability to pay premiums.

Death Benefit

The amount paid to the policy holder in case of the casualty.

Sum Assured

The amount of money someone is insuring for his/her life. It need not be equal to the death benefit.

Term of the Policy

The time for which the policy is active

Riders

Additional paid benefit options provided by the insurer for extra insurance covers like disability etc.

Switch

One can SWITCH between the various types of investment option in the ULIPs like Cash, Capital and Bond Investments

Top-up

One can pay more amount than the premium to allocate more money to Unit Fund for investment purpose. This facility is called top-up

Premium Holiday

Relaxation given by the insurers from paying premium for a certain time period. Premium payment can continue afterwards. The policy remains active in this period.

Premium Allocation Charge

These are the charges on the initial, renewal and commission expenses on the premium before the units are allocated for investments.

Mortality Charges

These are cut for meeting the cost of life insurance coverage. It depends on the age and condition of the policy bearer.

Fund Management Fees

It is the fees levied for management of the funds.

Administration Charges

This can be fixed or vary between a pre-determined range. It is imposed for administration of plan and cancelling of units.

Surrender Charges         

Imposed for premature and partial/full encashment of units

Fund Switching Charge

There is an option of switching from one investment to another but the number of times one can do this switch is limited. In certain cases, the number of switches is free up to certain limit and then chargeable but in some cases they are chargeable throughout.  This charge is called FSC.

Benefit Illustration

While purchasing a Unit linked Insurance Policy, one should always ask for the Benefit Illustration which gives a detailed working of the insurance plan along with the information about the different charges noted to the last decimal.

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