What Makes ULIP The Most Transparent Financial Product?

Unit Linked Investment Plans (ULIP) is the most transparent financial product. There is no other product where its compulsory to disclose all the charges in line items. When buying a ULIP there is a 'Benefit Illustration' that is available for the prospective buyer. It is a simple table that provides information on how premium would be invested, how and what charges would be deducted, and most importantly, how the fund value will grow. It not only shows how much charges get deducted each year from the premium but also how the investment will grow over the years.

The regulator has mandated that all life insurance companies have to provide a benefit illustration to the prospective buyers of ULIPs. This is both for offline and online ULIPs. 

There are four columns under deductions in the Benefit Illustration for online products. For an offline product, there are five columns. The fifth is the commission column which tells about the amount of commission for the agent. For online products, there won’t be any commission. The rest of the columns include a Policy Admin column which gives information about the admin charge that the insurance company charges for maintaining your policy which includes sending the document etc. This charge is now zero in online products. The second one is the premium allocation charge. It is the charge for initial expenses incurred by the company at the time of policy issuance. This charge in some way was the company’s earnings. It is also 0 now.

So, there are three columns that already have zero charges now. There is also a Fund Management charge. This charge is for an expert managing your funds and it is minimal. It is capped at 1.35% which an investor would want to part so that his money is managed well and he gets a good return. The last column is the mortality charge which is the risk of the cover. When you buy a ULIP, you buy a small insurance amount. So, if you invest Rs 1 lac, the insurance cover would be Rs 10 lac. For the Rs 10 lac insurance, there is a small charge called mortality charge. It's the same charge that you would pay to buy a term insurance cover. So, if you think of it, its term along with mutual fund packaged into one product and that becomes a ULIP.