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Why should you invest in ULIPs with return of mortality charges?

In 1971, a Unit Linked Insurance Plan (ULIP) was launched in the market with the objective of investment. However, a ULIP policy failed to guarantee investment benefits after its introduction due to high costs and low charges. After the ULIP investment failed to garner attention in the market, it was re-launched with low charges and decent returns. Before you purchase a ULIP policy, let’s understand the meaning of a ULIP policy to make well-informed decisions in the future:

What is ULIP?

A ULIP plan is a dual-benefit financial product, which can combine insurance and investment in a single roof. The primary objective of a ULIP policy can be to offer financial protection to your loved ones in your absence. Typically, a ULIP policy can provide a life cover to ensure the financial well-being of your family. Since you can secure your family members, your insurer can deduct the mortality charges in return for the coverage. Mortality charge can be one of the most common charged under a ULIP policy. However, many insurers might provide you with Return of Mortality Charge (ROMC) today.

ROMC is the newest addition to a ULIP policy. Hence, let’s understand what ROMC is in detail for better clarity:

ROMC can cut down the cost of your ULIP policy as well as enhance your maturity corpus. To understand the ROMC feature in simple terms, let’s take an example: As a policyholder, you might have availed a ULIP policy with a coverage of Rs. 10 Lakh, which has an annualised premium of Rs. 1 Lakh. If anything happens to you after the third instalment of the premium payment, the total premium value might be approximately Rs. 75 Lakh. After your demise, your insurer would pay a sum of Rs. 10 Lakh to the members of your family.

If your insurer returns the mortality on the maturity date, you might receive the earning that have been accumulated over the due course. With the earnings, you can obtain an enhanced corpus that can include your mortality charges. ROMC feature can turn a ULIP policy into an investor-friendly financial product. With the introduction of the ROMC feature, the primary objective of ULIP investment has changed, which can add value to your money.

Ideally, the total cost of ULIPs can range between 2-4% of the fund value. Within the overall cost of a ULIP policy, the mortality charge can be calculated per annum, which can be Rs. 1,000 for the life cover. The rate can depend upon the following factors mentioned below:

  • Age
  • Sum assured
  • Gender, etc.

Now let’s learn the benefits of the ROMC feature under a ULIP policy with the help of an illustration:

Let’s assume that you are in your 30s. As a 30-year-old, you might invest Rs. 10,00,000 every year in a ULIP policy for a sum assured amount worth Rs. 1 crore. Your policy term, as well as the premium payment tenure can be for 20 years. During the on-going tenure of the ULIP policy, the mortality charges deducted for the provision of a life cover might be Rs. 36,883 with a 4% assumed rate or Rs. 32,519 with an assumed rate of return of 8%. Your insurer can include either Rs. 36,883 or Rs. 32, 519 to your total fund value on the maturity date. That way, your maturity amount along with ROMC can be:

RETURNFUND VALUE AT MATURITY (A)RETURN OF MORTALITY CHARGES (B)MATURITY BENEFIT

(A+B)

@4%26,726,27036,88326,763,153
@8%41,471,38332,51941,503,902

In a nutshell, the ROMC feature can act as a reward that can help you stay invested for a long time. With the ROMC feature, a ULIP policy can become a lucrative investment that can enhance the ULIP benefits. Moreover, a ULIP can be a flexible, affordable, and convenient solution of investment, which can act in favour of every investor, whether you are a risk-averse investor or an aggressive investor.

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