Over the past decades, the Insurance Regulatory and Development Authority of India (IRDAI) has made several changes in market-linked and traditional investment plans. However, a Unit Linked Insurance Plan (ULIP) has undergone certain drastic changes at large. A ULIP plan, which was once heavily criticized for its high charges, has seen a drop in its charges after the new rules set by the IRDAI.
Today, the new-age ULIPs consist of the most common four various types of charges: policy administration charge, premium allocation charge, fund management charge, and mortality charge. The recent addition in these ULIP charges is the return of mortality charge (ROMC). The ROMC feature can allow you to grow your maturity corpus. In addition to this, it is a reward from your insurer to stay invested for a long time.
Before getting into the details of ROMC benefit, let’s first understand what a mortality charge is in depth:
When you purchase a ULIP, you should pay the premium in return for the coverage from your insurer. The premium you pay is usually directed not only towards any applicable premium allocation charges but also can be invested be in your ULIP funds. In addition to this, other charges like policy administration charge and mortality charge can be deducted from your premium amount.
The charge, which your insurer deducts for providing insurance coverage, is known as a mortality charge. Typically, mortality charges depend on the following factors mentioned below:
- Age
- Sum assured value
- Gender
- Term of the ULIP policy
- Health condition
- Lifestyle habits (smoking)
For instance, you have purchased a ULIP policy at 30 years of age with a sum assured of Rs. 1 crore for 20 years. Your annual premium for the next 20 years would be Rs. 10,00,000. The mortality charge deducted from your premium amount might be Rs. 33,000.
Although mortality charges are the cost for your insurance coverage, you are not eligible to receive the whole amount, even if you survive the ULIP policy. However, the new-age ULIPs provide you with ROMCs on the maturity date.
Before purchasing a new-age ULIP policy, let’s understand what ROMCs are in detail:
Many insurance providers offer ROMC features to enhance your ULIP policy. ROMC is the total amount of the mortality charge, which is deducted from your ULIP policy until the maturity period. At the end of your ULIP policy, ROMC is added to your fund value. With the ROMC benefit, you can fulfill your life goals at the end of the maturity period with ease. Moreover, it is a lucrative feature, which ensures your participation in a ULIP policy.
To simplify the process, let’s understand the ROMC benefits of a ULIP policy with an example. For instance, you invest Rs. 10,00,000 Lakh every year at the age of 30. You have opted for a sum assured of Rs. 1 CR with a policy and premium term of 20 years. During your policy term, your mortality charge of Rs. 36,883 might be deducted at 4%. By the end of your maturity period, your mortality amount would get added to your fund value at maturity.
On the maturity of your ULIP policy, if you choose to receive ROMC in installments during the lock-in period of five years, you can gain an additional benefit: Return enhancer. The return enhancer benefit might be approximate 0.5% of each installment, which is due. With return enhancer benefit, your fund value can increase to Rs. 2.81 crore at 4%.
To sum up, the ROMC benefit is a worthy addition to the dual-packed financial product like a ULIP policy. Years ago, many people were clueless about, ‘why should I invest in ULIP?’ Today, the question of investment in a ULIP policy is long gone with the introduction of ROMCs and return enhancers.
