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Need assistance in choosing the right insurance plan? Get a call from our Expert.

Need assistance in choosing the right insurance plan?Get a call from our Expert.

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How To Read the Benefit Illustration of a ULIP Plan?

Benefit illustration explains the insurance coverage and definitions of the technical terms used in the policy. To read the illustration, one must know some of the basic terms such as net yield, mortality charges, etc.
 

A Unit Linked Insurance Plan or ULIP# invests your money in the stock market2; debt, equity and other fund options. The insurance illustration of your ULIP plan is its narrative summary designed to inform you about the policy. 
 

As per the new guidelines of the IRDAI (Insurance Regulatory and Development Authority of India), all life insurance companies must offer a benefit illustration of the ULIPs to all potential buyers.

How to Read the Benefit Illustration Insurance Details: Basic Guidelines

  • A section of the benefit illustration includes personal information like your name, age, and other details such as premium, policy term, and maturity age. It also outlines the allocation of funds.

  • The first column in the benefit illustration represents the annualised premium amount, while the subsequent column reveals the 'premium allocation charge' (PAC). The column immediately following shows the amount available for investment.

  • Similarly, additional columns display various other charges, including policy administration charges, fund management charges, mortality charges, and service tax, all subtracted from the premium.

  • For guaranteed1 ULIPs, there is a designated column showing the amount that is compulsorily added to the fund value.

The last three columns are of significant importance, as they display the fund value, surrender value, and death benefit at the end of each year. In the case of a 20-year term benefit illustration, the policyholder can review the fund value, surrender value, and death benefit for any given year.

Common Terminologies of the ULIP Benefit Illustration: Explained

 

  • Policy Year: This term pertains to the duration of your insurance policy or the number of years you remain invested in it.

  • Annualised Premium: This is the yearly premium amount that you are required to pay. Depending on the terms and conditions of the plan, you can choose to make this payment on a monthly, quarterly, semi-annual, or annual basis.

  • Premium Allocation Charges: These charges constitute a percentage of the premium you pay upfront. They are deducted, and the remaining amount is invested in the chosen funds.

  • Policy Administration Charges: These charges encompass expenses not covered by premium allocation charges or fund management charges. They may be expressed as a percentage of the sum assured or as a fixed amount.

  • Fund Management Charges - These fees are imposed as a percentage of the asset value and are adjusted by modifying the Net Asset Value. They are usually calculated daily.

  • Mortality Charges: These charges are incurred for providing insurance coverage throughout the policy term. The insurer deducts these charges by cancelling units under the policy. 
     

Note: The exact mortality charge depends on your age, the sum assured, and the policy's term.
 

  • Fund Value at the End: This term indicates the fund's value at the end of the year after all charges have been subtracted and growth has been factored in.

  • Surrender Value: This is calculated after certain applicable discontinuance charges have been subtracted.

  • Net Yield - The 'Net Yield' column displays the yield after applying charges. It presents separate net yields for fixed assumption growth rates of 4% and 8% (set by the mandate). Net Yield represents the Reduction in Yield (RIY), which is the charges subtracted from the growth rate. 
     

    For example, if the total charges amount to 1.75% at an 8% growth rate, the Net Yield is 6.25%, and the RIY is 1.75%. In general, higher RIY values correspond to lower Net Yields and reduced returns, following this logical relationship.

     

Conclusion

Benefit illustration is an important tool for understanding the returns, fees, maturity, and other important values of your policy. The policyholders can easily read the benefit illustrations by understanding the basic terminologies given in the illustration.
 

Reviewing the benefit illustration before buying a ULIP plan allows you to envision the potential growth of your investment in the coming years. It can assist you in financial planning to achieve critical life goals.

Get Flexibility to Choose from 10+ Fund Options with our ULIP

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions (FAQs)

What does 4% and 8% signify in insurance?

4% or 8% represents an assumed growth rate established by regulatory requirements. It is not guaranteed, except for specific policies. Insurers rely on financial product sellers for clarification.

What is the maturity benefit of ULIP?

The maturity benefit in a ULIP plan refers to the sum offered by the insurer to the policyholder if they survive beyond the policy's maturity period.

How is the ULIP fund value determined?

The fund value of a ULIP is calculated as the total value of the units owned by the policyholder. You can calculate the fund value on a specific day by multiplying the net asset value (NAV) of each unit on that day by the number of units held.

Disclaimers

  • Insurance cover is available under the product.

  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • Guaranteed/Guarantee: 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.

  • 2Market-linked returns are subject to market risks and terms & conditions of the product. The assumed rate of returns or illustrated amount may not be guaranteed and depends on market fluctuations.

  • #IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

  • Past performance is not indicative of future performance.

  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

  • Please make your own independent decision after consulting your financial or other professional advisor.