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Part - III

Expenses

One area where unit-linked plans come in for widespread criticism relates to the expenses that insurers charge under three broad heads: mortality charges (which goes towards paying for your insurance cover), general expenses (agents' commissions and underwriting costs), and fund management costs. The second head, general expenses, accounts for the biggest component-typically, around 40 per cent (of the premium paid) in the first two years, which goes down sharply in later years. The actual expense structure may vary from one product to another depending on, among other things, the amount invested, the investment tenure and the period beyond which withdraws are permitted.

Should Investor Opt for ULIP

First and foremost, investors need to understand that a ULIP is a bundled product of their investment and their insurance proceeds. So if you have a ULIP invest in equities, you are exposing your life insurance monies as well as your investible surplus to the vagaries of equity market. While it is fine and even sensible to let your investible assets get an equity flavour, the same cannot be said about your life insurance monies, which to a large extent should be scared.

A ULIP policyholder has the option to invest in a variety funds, depending on his risk profile. If one does not have appetite to invest in equity, they can choose a debt or balanced fund. However, the structure of a ULIP takes care of quite a bit of the uncertainty in the markets. Insurance companies understand the need to give insurance seekers the flexibility to rethink their investment strategy in view of market histrionics. It is the investors to make the right switch they need to track markets actively and be well informed, which is actually the job of the investment advisor/consultant.

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* Contributed by -
A.Sathish Kumar,
Asst. Professor,
Vivekananda PG College,
Karimnagar (AP).