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An introduction to Universal Life Policy (ULP) for life insurance

Since IRDA has approved the introduction of ULPs, we can expect a flood of such products in the Indian market. Here is all you need to know about this type of life insurance policies.

There are many types of insurance policies available:

Of course, the best form of insurance is term insurance (check out “Term policy (term insurance) is the best policy”). However, if you have decided to invest in an insurance + investment type of a policy, should you invest in Endowment or a ULIP?

Obviously, both these have their advantages, and disadvantages. However, a Universal Life Policy (ULP) tries to combine the best of endowment plans and ULIPs.

What is Universal Life Policy (ULP)?

The hallmark of a ULP is flexibility. You can change its:

Premium amount
Tenure (also called tenor or duration)
Sum assured

As you can see, none of these benefits are offered by the traditional policies. Thus, a ULP brings something totally new to the market!

Features of a Universal Life Policy (ULP)

Premium can be changed

The amount of premium that you pay for your policy can be changed during the life of the policy. This gives you great flexibility to adapt your insurance policy to your changing incomes.

(Initially in India, the premium amount may not be allowed to be changed. However, you should be able to change the premium paying frequency – between yearly, half yearly, quarterly and monthly – which too gives you some flexibility)

Sum assured (SA) can be changed

Again, this is something that gives you tremendous flexibility. You can change the sum assured depending on the changes in your insurance needs – depending on your income, your dependents, etc.

(Please read “How much is your life worth - How much insurance should you buy?” for more)

Tenure can be changed

Just like the premium and sum assured, the duration of the policy can also be changed midway while the policy is already in force.

No cancellation if premiums discontinued

Even if you stop paying the premiums, the policy would not get cancelled. The policy would be kept alive and in force, although with a reduced sum assured.

No flexibility in investments

Here, a ULP would be more like a traditional endowment plan – you would have no control over the investments. The investment manager of the policy would decide where your money is deployed.

Unlike a ULIP, you would not be able to choose from different options like maximizer (equity focused), balancer (mix of debt and equity), etc.

(Check out “ULIP v/s Endowment Plan for Life Insurance” for more)

No transparency of investments

Again, like endowment plans, you wouldn’t know where your money has been invested, and how much return it has obtained. You would just know the “bonus” declared by the insurance company from time to time.

No fund management charge

Since you would not be specifying where your investment would go, there would be no fund management charge deducted from the premiums. This is a big relief compared to ULIPs!

Universal Life Policy (ULP) in India

So, when can we expect ULPs in India?

Quite soon! The Insurance Regulatory and Development Authority (IRDA) has approved application for offering ULPs by some life insurance companies. So, we can expect them any time now!

The companies that should be launching ULPs initially are Bharti Axa Life Insurance and Max New York Life.

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Note: Please treat the opinion expressed here as a broad suggestion. Please consult your financial planner / investment advisor before making any investment decision.

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