Expert advice

Apr 25, 2011,17.49 IST

Buying a ULIP from a financial advisor? Ask these questions

Suresh Sadagopan, CFP, Ladder7 Financial Advisories

If you are evaluating ULIPs, you need to know a few things before you make your decision. It is not just charges alone - ULIPs are pretty transparent on that front anyway. However, you need to ask a few questions and you will be on your way to taking an informed decision.

Ask about the charges :  Don't be taken in by the “no premium allocation charges in this plan bit”. Ask for all the charges applicable year-on-year. The charges you need to know about mainly are -  premium allocation charges, policy administration charges, Fund Management charges & Mortality charges. Also, are there any other charges like charges for any guarantees etc. You need to understand what are going to be ongoing charges from now on, till the policy end. Charges alone cannot be the deciding factor – but you need to know what kind of product you are getting into.

Ask about the funds performance : Though past returns are not any indication of future performance, they provide you a reasonable guideline regarding their management. All other things being equal, it is better to invest in a fund with good performance history rather than another fund with no track record.

What are the kinds of funds available : Many ULIPs have several funds from aggressive equity funds to money market funds. From among them, you could choose the funds to invest in. If they have a wide variety of funds, it is to your benefit as you could invest in more than one fund and also switch between them. Understand what kinds of funds they are – Largecap funds, midcap funds, Hybrid funds, Debt funds, Asset allocation funds, index funds etc. Understand the mandate in each case and the best allocation that you should seek in each of these.

Flexibilities offered : When does the fund allow you to surrender/ partially withdraw?  This is an important question to know, as in an emergency, you may want access to your funds. Surrender is possible even after one year, but that amount is receivable after completion of 5 years. This means that any amounts that may be accumulated will not be available to you when you want and would also be subject to applicable surrender charges. You also need to know about switches between funds and any charges for them.  You also need to know if you can top up the funds and if so by how much and what their charges are.

Life cover offered : Some policies offer a specified life cover and some others offer life cover in a range. Do find out if life cover is required in your case and if so, can this product offer you the appropriate cover. Ask the agent regarding the claim settlement mechanism and the claim settlement ratio.
Other services : Does the policy offer any guaranteed returns? Does the guarantee hold good if one surrenders in between? After which year, will the guarantees be honoured? There are other smaller, but vital matters as well. Does the company insist that you come personally to their branch in case you want to surrender/ partially withdraw your fund? Some companies insist on this and this is an unwanted irritant.

Now that you know most of the things, also read the brochure and any illustrations that the agent may offer you. Get clarity on the numbers. After that, you decide if you want to write out that cheque.


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