Khota Paisa

The New Face of ULIP

Posted in ULIP by khotapaisa on September 11, 2009

IRDA recently propsed capping of charges on ULIPs. As per the new proposal, the total charges on a 10+ year policy can’t exceed 2.25 percent while the same can’t exceed 3.0 percent on a 10 uears or less policy. It excludes mortality & morbidity charges. Let us now try to see what impact it will have on the investors. Even on a cursory look, it is clear that the effective return of ULIP plans will improve because of the cap on charges. To understand it better, let me take an example of an ULIP, say SBI Unit Plus II. 

Sample policy details –

Annual Premium : 25,000/-
Policy Duration : 20 yrs
Investment : Full Equity
Maturity Value (@ 10% RoI): 1,084,069/-

If we apply the proposed cap on charges, the investor will have a maturity corpus of about 1,112,500/-. This is an increase of ~2.5%. While it may not be a large gain, it will be much higher for most of the existing ULIPs.  This is so because this ULIP has comparatively much lower charges. Overall, it is going to be very beneficial to investors and help move ULIPs a step further towards competing  with mutual funds.

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