Unit linked insurance policies have become extremely popular as far as investors are concerned. There are however complaints that the investors do not have a clear idea of how their premiums are being used and they come to know of the various charges only at a later date. This leads to confusion about their actual working. There are several reports to suggest that in the future insurance companies might have to give statements that lay out in detail the exact way in which the investors premium is being accounted.
The most important factor required for the investor is clarity about the way in which their premium is being accounted. When an individual pays an amount as premium in a unit linked policy, then a part of this amount goes towards expenses and the remaining amount is towards conversion into units. In most cases, the investor just gets an idea about the number of units bought and this will not give him a clear idea of how his money was divided and invested. Clarity on this matter is a must for the investor to be better informed.
Each separate head
The next part of the process deals with the way in which the break up will be shown. This can determine the actual use of the entire exercise. There has to be a clear way in which the various expenses should be shown. When they are shown under each separate head, which will give the total amount that is deducted under each head, then the person who has bought the policy will be able to get some clarity on the subject and take decisions accordingly.
The disclosure about the various expenses should not be a one-time thing because there are expenses to be battled at each and every step. There are various expenditures that occur on a regular basis and for this purpose the policyholder has to know what is happening to his money. In this sense, there is need to ensure that the expense is disclosed under various head like premium allocation charge, policy administration charges, rider charges, mortality charges etc.
Actual calculation of return
In case of a unit linked policy, the calculation of the return becomes important because this will determine the final amount that the investor will get.
Demarcation of various charges will make it clear to the policyholder the actual amount of return that he will earn on the amount invested and how that compares to the total premium that he has paid.