Cost Is The Key
Outlook Money|February 2021
New-age ULIPs are offering big ticket discounts to lure millennials. There’s a fear of hidden costs
Nirmala Konjengbam

With their low-risk and high-return possibilities and easy switch options, New-age Unit-Linked Insurance Plans (NULIPs) offer a great solution to investors who worry about volatility in the market and prefer to hedge their investments. Targeting the new fourth-generation or 4G population and lure them to start early on their investment journey, NULIPS have greatly reduced most charges, including premium allocation, policy administration, fund management, and mortality. Most insurers have capped the fund management charge at 1.35 per cent of the fund’s value. This is deducted before computing the net asset value of the fund. Nowadays many insurance companies are also returning the mortality charges at the time of maturity. Hence these taxsaving investments are also offering a good value for your money.

It is but natural for any reduction or abolition of charges to sow doubts in the minds of potential investors on the feasibility of the plan or the insurer. After all, there’s never a free ride and someone has to pay for all the discounts and sops.

Casparus Kromhout, MD and CEO, Shriram Life Insurance, rightly points out, “Waiver of charges would lead to an increase in return for ULIP holders but that would also reduce the income components of insurance companies.”

A layperson cannot fully comprehend the functioning of these financial instruments. Therefore there is a brewing concern of hidden components insurers might levy to compensate for the reduction in regular charges. Allaying fears, experts, however, stress that these are transparent investment options.

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