Unit Linked Insurance Plan

ULIP is life insurance solution that provides for

the benefits of protection and flexibility in
investment.

The investment is denoted as units and is

represented by the value that it has attained
called as Net Asset Value (NAV).
How ULIP Works

As we know Premium money collected from

the client has the following components

 Expenses

 Mortality

 Investment
 ULIP- A transparent product

 In traditional products the client does not know

the amount that goes in to each component.

 In ULIP the components are clearly expressed to

the clients as follows
Expenses- The admin and management charges
Investment- The amount available to invest in a
fund of client’s choice
Mortality- The mortality charges
Example- Step 1
 Client pays annual premium of Rs.20,000

 Deduct 40% as Premium Allocation Charge - Rs.8,000

 Deduct Rs.200 per month as fixed monthly

administration expense

 Deduct Rs.100 on the first month as mortality charge

 Balance Rs.11,700 is used to purchase units as per

investment choice of the customer
Step 2
 Investment Fund (Rs.11,700) is used to buy units
based upon NAV Values of the fund on that Day

 If NAV is Rs.10 on that day then

Rs.11,700/10 = 1170 units are purchased
Step 3
 For the first month the units are cancelled up- front and
amount deducted to pay for the risk cover and expenses,
this is 1/12 th of the annual amount so calculated

 Every month the required no. of units are cancelled to

cover mortality charges and fixed monthly administration
expenses

 Suppose in the second month the NAV is 12, 16.6666 units

cancelled at Rs.12/-, to generate Rs.200/- so 963.3334
Units Remain

 This is repeated every month till end of the year

 Step 4- Second year

 Client pays renewal annual premium of Rs.20,000

 Deduct 20% as 2nd year Premium Allocation Charge -
Rs.4,000
 Deduct Rs.200 per month as fixed monthly
administration expenses
 Deduct Rs.80 on the first month of the second yr. as
mortality charge
 Suppose in the second year beginning the NAV is
Rs.14 Per Unit, so Rs.13,720/14 = 980 Units are
purchased
 So total units= units at end of first year + 980 units
Recap
More units are purchased
With balance amount
Mortality Charge Premium Related Charge Admin Charge
Less
2nd year Premium
NAV moves up so as the Fund Value
Units are purchased
With balance amount
Mortality Charge Premium Related Charge Admin Charge
Less
1st year Premium
 Traditional Products V/s
Unit Linked
Traditional Products Unit Linked Products
 Guaranteed benefits  Benefits are not guaranteed
 Par policies benefits  Depend on investment
are based on bonus performance linked to
 Premium invested by market
insurance company  Premium invested on
 Premium components direction of policy holder
are bundled  Premium components
transparent
Benefits-In case insured dies
Option 1
Face Amount
or Level Death Benefit
Account Value
(Number Of Units X Prevailing NAV)
Which ever is higher

Option 2
Face Amount Increasing
+ Death Benefit
Account Value
(Number Of Units X Prevailing NAV)
Maturity Benefits

How Much will policy holder Get?

Account Value
(Number Of Units X Prevailing NAV)