Life Insurance: Deepak Sood

Last Updated: Tue, Oct 02, 2012 06:14 hrs

I invested in a unit-linked insurance plan (Ulip) three years ago. How do I check the returns it has generated? Also, if it has underperformed, does it make sense to withdraw the policy now? What is the lock-in period, so that I don't have to pay any penalty on withdrawing it?
Insurance companies declare the net-asset value (NAV) on a daily basis for all the funds managed by them under Ulips. You can check the same on the insurer's website. This will help you in assessing the fund's performance on a day-to-day basis. You can also request the insurer for a fund statement, which will provide you with the information of investments made in funds and current fund value. Some insurers issue periodical newsletters, which may help in assessment of a fund's performance.

It is not advisable to surrender the policy, particularly in volatile and underperforming market conditions. You may rather use an option to switch the fund value of your policy from existing funds to more stable funds like debt/money market funds till the market stabilises. As far as lock-in period is concerned, Ulip policies issued prior to September 1, 2010 have a lock-in period of three years, whereas those issued post-September 1, 2010 have a lock-in period of five years.

Further, it is always advisable to refer the policy document before surrendering the policy as the penalty differs from product to product and the period over which surrender penalty might be charged was not specified prior to September 1, 2010. Now, no penalty is charged on policies issued post-September 1, 2010 if it is surrendered after completion of four years.

What are guaranteed Ulips? How different are these Ulips from the ones which don't offer any guarantee?
Ulips are market-linked insurance plans where the investible portion of the premium is invested in unit-linked funds which provide returns that are linked to the markets. These funds have assets, which are a combination of debt and equity-linked instruments. Based on the risk profile of the customer, he can decide to invest his policy money in one or more than one of such funds provided in a Ulip. The investment risk in these plans is borne by the policyholder. There are some Ulip funds which provide a minimum guaranteed return. Such Ulips are called guaranteed Ulips. The net asset value (NAV) guarantee plan assures the fund value based on the highest declared NAV during the policy term, although this guarantee is available only on maturity. Furthermore, one should remember that 'NAV guarantee' doesn't mean 'highest return guarantee'.

Rather to reduce the risk of fluctuation in NAV, insurers take a cautious approach to investing, which may reduce the opportunity of growth in the long term.

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