Never surrender your Ulip policy within five years
Mumbai: Sandhya Nair was coaxed into buying a Unit Linked Insurance Plan by a life insurance agent. According to the persistency data of most life insurers, around 50 per cent of Ulip policyholders surrender their policy within the first five years. But, unlike a mutual fund scheme where there is one single consolidated total expense ratio to look at, Ulips have a long list of charges such as the premium allocation charge, mortality charges for the insurance cover, fund management charge, policy administration charge, partial withdrawal char-ges, premium redirection charge and premium discontinuance charge. This significantly disadvantages policyholders who surrender their Ulip policy within the first five years, as the ULIP charges in this phase ranges between 3 per cent to 9 per cent for the first five years as policy allocation charges are higher and the assets under management base is smaller. The study found that it’s only after the first five-six years that the Ulip annual charges come below the mutual fund’s–as the policy administration and allocation costs turn to be very small as percentage of fund and it is mostly around 130 to 135 basis points of fund management fees.
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