Spend, Save and Invest Smartly
Is your Friend or relative an Insurance Agent.....??? Have you ever forced by them to take an insurance policy.....??? Nowadays we can see that most of the youngsters are getting attracted towards this industry. Huge salary, commissions and incentives make them to choose this industry. But have you ever thought how companies are providing them this much.....??? or how these companies are paying huge commission to their employees.....???
ULIPs are new trend in the industry; nowadays 90% of the insurance agents are trying to sell ULIPs because in ULIPs charges are high compared to traditional plans and this will help them to get more commission. Generally there are two kinds of ULIPs such as Customer beneficial (with fewer charges) and Agent beneficial (with higher charges). Always prefer customer beneficial plans so that the burden of charges will be less on your investment. More the charges less the benefit you will get and vice versa. There are so many things you need to consider while choosing an insurance product. A little negligence will make you to lose your hard earned money. Below given are some of the major charges levied on ULIPs.
As we have already discussed that most of the insurance products carry (ULIPs) a number of charges, out of this majority will be hidden charges. If you are well aware of the charges, you can have a look into different charges levied on the product before buying it so that you can escape from the fraudulent sales tactics of insurance agents. The charge structure varies from product to product. Some of the common fees and charges are given below :
The money appropriated from the premium paid by you toward charges before allocating the units under the policy is called Premium Allocation Charges. It normally includes initial, renewal expenses, and commission expenses. This cost worst effects your returns and in initial years you have to more Premium Allocation charges then later years.
You have to pay some charges out of your premium toward payment to the sale people/insurance agents/banks from whom you bought policy. It also includes the fees for administration of your plan this fee can be fixed or variable.
This is one the most important charge which you have to pay for ULIPs. It is deducted as a percentage from the fund value. The fees levies for management of fund(s) and it is deducted before arriving the Net Present Value of the fund.
This is the cost that you bear for your insurance cover. It would vary depending on policyholder's age, sum assured and policy term. For ULIPs which pay higher of sum assured or fund value on death, Mortality Charge falls with time while ULIP which pays both the sum assured and fund value, it remains constant.
ULIPs give you the option to switch your fund to different equity or debt options which are applicable in your policy. There is a limited number of fund switches are allowed without charge but if you exceed that limits then you will be levied a charge.
ULIPs provide you to encash your units before the maturity date. When you go for premature partial or full encashment of units you have to pay Surrender Charges.
Things to be considered while buying a Policy
Life Insurance provides financial security for a human. When the breadwinner of a family dies the life insurance policy comes into picture to help the family. It helps the dependence of the insured person to meet their Individual and family’s needs. Therefore they will naturally be forced to give sufficient funds for this purpose. This practice encourages thrift and also helps people to plan for some productive schemes.
Insurance policy holders are allowed to claim income tax exemptions for the payment of premiums. The amount and the level to which they are allowed depends on different factors like the persons income, investment, etc. This provision is the most tempting point which makes people to invest in insurance and attain a mutual benefit of tax exemption. Since universal life insurance is a long term investment it is not advised to borrow money either by loans or through surrender values as they reduce your policy amount.
This is the third important reason to buy insurance. Generally savings is the amount remaining with a person after he/she meets all their basic expenses and other cash needs. If one has to build wealth, savings need to be channelized into an investment with precise time horizon and goal. But purchasing an insurance policy is neither savings nor investment; it is simply an effort going waste. Life insurance is the only investment option that offers specific products tailor-made for different life stages. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage, and hence guarantees that the financial goals of that life stage are met.