Differences between traditional plans and ULIPs

ULIPs:-

.The premiums, in excess of risk cover, is invested as desired by the policyholder

.The investment return may vary depending on the market movements and the investment risk is borne entirely by the policyholder.

.Withdrawals are allowed. Loss, if any, depends on NAV
Loans are not allowed

.There are no bonuses, except loyalty bonus in some cases

.The amount of the premium used for insurance coverage, other charges and the purchase of units are unbundled and transparent.

.Benefits are variable

.Loss is likely

.Gains likely depending on market movements

Traditional Plans;-

.All the premiums go into a common fund and are invested at the insurer's discretion.

.There are two categories of benefits – guaranteed and non-guaranteed. For guaranteed benefits, the insurer bears the investment risk. However, non-guaranteed benefits, such as bonuses, depend on the performance of the insurer.

.Surrenders are allowed but at a loss.

.Loans may be provided.

.For participating policies, bonuses are payable

.The premium amount used for insurance coverage, other charges and investment are bundled up and not known.

.Benefits are pre-determined

.Loss is unlikely

.Gains unlikely except through bonuses

The following charges are applicable in the case of ULIPs. limits.

•Accident benefit charges if the accident rider is taken
•Administration or fixed charges are the fees for administration of the plan.
•Flat fee which will be charged every month, regardless of the size of premium
•Fund administration charges being a percentage of the fund and deducted daily
•Fund switching charges levied when there is a switch from one fund to another
•Insurance or risk cover charges is the premium for the death cover
•Service Tax is also charged, usually on a monthly basis
•Surrender charges may be charged for partial or full encashing of units before a certain period of time.

S.M.MAsoom
Banker and Financial Consultant