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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

Ms. Neha Kapoor holds a unit linked insurance plan (ULIP) bought five years ago. She asks which feature differentiates a ULIP from a traditional endowment plan. Which statement is correct?

In a ULIP the policyholder bears the investment risk and the fund value depends on the NAV of the chosen fund. Unlike a traditional endowment plan, no maturity amount is guaranteed, fund switching is usually allowed, and mortality charges are deducted for the life cover.

  1. AThe ULIP guarantees a fixed maturity amount declared at inception
  2. BThe ULIP investment risk is borne by the policyholder, and the fund value depends on NAV of the chosen fundCorrect
  3. CThe ULIP allows no switching between funds during the policy term
  4. DThe ULIP charges are fixed and do not include any mortality charge

Explanation

In a ULIP the policyholder chooses funds and bears the investment risk; the fund value is units multiplied by NAV. Maturity amounts are not guaranteed, switches among funds are generally permitted, and mortality charges are deducted to pay for the life cover.

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