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Charges on Older ULIPs

Investors in ULIPs that were launched before the new regulations were put in place would have incurred high charges

I had invested in Bharti Axa Bright Star plan in 2009 with a critical illness rider. The premium is Rs 20,716. I paid the premium till September 2012. When I checked the fund value in September 2013, it was very low and didn't even cover the premium paid. I have stopped paying the premium. Should I surrender the policy?
- Vaishali Apte

This is a unit linked insurance plan which is part insurance and part investment. You have made losses due to the high charges under this policy which was launched before new ULIP regulations were put in place. If you look at the plan brochure, you will find that the Premium Allocation Charge can go upto 40% depending on the tenure of the policy. This means 40% of your premium is deducted as soon as you pay it. Remaining premium is then allocated towards investment and insurance components. Apart from this charge, there are various other charges such as Policy Administration Charge, Fund Management Charge which are responsible for losses or lower returns on your investment so far.

This policy had a lock-in period of three years. You have already paid premiums for initial three policy years and you are free to surrender this policy. You will receive fund value of the policy less surrender charges. Surrender charges depend on tenure of the policy and year of surrender. The charge is nil for policy term of 7 and 10 years, whereas, for higher tenures, surrender charge of 3% applies.

It would be better to move out of this plan and buy a separate term life insurance for an adequate amount. Invest the annual premium amount instead into SIPs in mutual funds. We recommend funds such as HDFC Equity, ICICI Prudential Dynamic and Quantum Long Term Equity as possible choices. You will also find separate critical illness policies available in the market. Go to the insurance section of our website for the same.

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