ULIPs can be classified based on the criteria and norms. Normally the Unit Linked Insurance broadly classified into two types depending on the death benefits.
Type 1 ULIP plans – In case of death of the policyholder, the nominee receives death benefits higher than the sum assured by the insurance company. The mortality charges in type 1 insurance plans keep reducing every year as the sum of the risk reduces. The risk is the difference between the amount deposited and the sum assured by the insurance company. The insurance provider pays the amount from its pocket if the policyholder dies before paying the premiums for the entire sum assured.
Type 2 ULIP Plans – If the policyholder dies, the nominee will receive the total sum assured along with the total fund value of the insurance. It is worthy to note here that the premium paid is higher for type 2 plan than the type 1 plan. This plan also considers the mortality charges as the risk for the death increases with age.
Before enrolling in any insurance plan, the policyholder should understand each category of a plan to claim the policy at a later point in time.
How To Claim Death Benefits In Ulip
To claim the ULIP policies, the nominee of the plan should report the death of the policyholders directly or indirectly through the insurance agent, who sold you the policy. You as a dependent or nominee has to follow some basic steps such as filling the required form and the list of documents mandated by the insurance providers.
- Intimation –Formally contact the insurance provider to intimate the death of the policyholder if you have bought the insurance online or from the office. The intimation is the first and necessary step for the claim; the insurance provider should receive the death report within 15 days from the death of the policyholder.
- Claim form – The claim form has to be filled and submitted to the insurance provider for the claim to be registered formally. The details in the form include some basic information such as age, name, reason and time of the death of the policyholders.
- Documents – The necessary documents for the claim settlement process are the copies of the death certificate, claimant’s photo id, and address proof, police FIR, post-mortem report in case of accidental death. Certificates and medical reports in case of the death from illness.
- Settlement – Once the required documents reach the insurance providers and they think the mandatory documents are provided, the claim process formally gets registered and processing starts. The settlement amount will depend on the sum assured and the type of plan the policyholder has chosen for the payouts. The claims settlement process will take only 30 days from the date of claim reported.
What Are Ulip Charges?
In ULIP, the premiums you pay are invested into debt and equity investments after deducting all the allocation and charges. The premium charges for ULIP is divided into different categories.
- Premium Allocation charges – The policyholder will be charge beforehand on the premium paid by the investor. These are initial expenses such as medical expenses, underwriting costs incurred by a company issuing the policy.
- Policy administrative charges – These charges are deducted regularly for the recovery of expenses borne by the insurance policy.
- Surrender charges – This refers to the deduction for the full or partial encashment of premature units subject to the policy documents. Surrender charges are the levied as a percentage of fund value or percentage of premium payments.
- Mortality charges – Mortality charges are borne by the insurer to provide a life cover to insured. The charges will vary with the age and sum assured.
- Fund management charges – The aggregated sum through debt and equity are spent through ULIP is invested in equity and debt. The insurer bears the charges for the fund management invested in equity investment and debt.
- Fund switching charges – ULIP plans help you to invest your hard-earned money in different funds that have different equity and debt. You can switch between different funds whenever you want to. The insurer bears the charges for switching between funds.
- Discontinuance charges – On premature discontinuation, the insurer charges you a small fee. The charges will be the same across all policies as per IRDA.
Tax Advantage of ULIPs:
ULIPs are completely tax free and the only product in the industry with a mark-to-market return and a EEE tax benefit wherein you get a tax deduction U/S 80C at the time of investment, the returns earned are not taxed and the maturity benefit is also tax free provided the sum assure dis at least 10 times the premium in all the years!
ULIP is a unique type of life insurance policy where you get the benefit of insurance coverage along with investment which is on a mark-to-market basis. Thus, it is called a dual advantage plan as you have the benefit of shifting from one asset class to another without any tax implication, unlike other products in the industry.
Thus, if you have chosen ULIP, you will not face challenges at any point of time as it is super flexible and can be customized according to the changing needs of the customer. All you need to do is compare all the plans on websites like Coverfox.com and then choose the one which best suits your needs.