ROMC and ULIPs: The Connection You Need to Know

Have you heard of the term ROMC? If you are wondering why you should know about them, it is because they are linked to ULIPs or unit-linked insurance plans. Insurance regulators have capped most ULIP charges, making new-gen versions of these popular investment schemes more affordable than earlier. These also come with features that are investor friendly, such as zero premium allocation charges and, most importantly, return of mortality charges which are regarded as revolutionary mechanisms in the current industry spectrum. Let us learn more about ROMC and some other key aspects in this article. 

What do we mean by a mortality charge? 

Whenever you buy any life insurance plan, you will naturally pay a premium for the coverage that you obtain. A specific portion of the premium amount will be deducted for premium allocation charges if they are applicable, and the remainder will be invested in the fund that the customer selects. From this sum, there are other charges which are deducted, including the mortality charge and charges for administering policies. The mortality charges are deducted for the provision of life coverage as per the policy terms and conditions. 

They depend on parameters like coverage amount or sum assured, age, policy tenure, gender, health conditions, smoking habits, and so on. They are deducted every month through the cancellation of units. ROMC, or return of mortality charges, talks about returning this to policyholders at the time of maturity. Hence, this opens up another avenue for policyholders, along with the returns that they derive from their fund performance

Learning More About ROMC

ROMC is a new concept that not many insurers offer today. The disruptive idea is all for returning the mortality charges to customers upon policy maturity. It is already a vital feature of some ULIPs from leading insurance companies. The total mortality charges are naturally added back to the value of the fund at the conclusion of the policy tenure in these plans. These mortality charges were earlier deducted until maturity to ensure life coverage for the entire duration. 

This unique feature is bound to draw the attention of prospective policyholders, giving them yet another incentive to invest in ULIPs and similar life insurance plans. In addition, they will appreciate the nominal but additional amount that they get back as a part of the fund value at the end of the policy. 

Several experts feel that yields from investor portfolios should increase by a minimum of 200-250 basis points, even when there is a 15-20 basis point discount per annum taken as the monetary time value. Insurance companies also feel that this feature will be better for those customers who do not want to pay for any service that they do not require or have not taken. ROMC-based ULIPs are ideal propositions for these customers since they will be paying for a feature that they may take. In case they do not require the same, they will have the charges returned to them as a part of the fund value. These concepts should find takers today since even term plans with the return of premium features have generated sizeable traction earlier. If ROMC is an additional incentive for you to invest in these policies, then you should know more about some other advantages that ULIPs give you. 

What else should make you invest in ULIPs? 

ULIPs come with the following benefits for investors that you should also know about: 

  1. Combination of decent life coverage (throughout the policy tenure) with investment options in market-linked equity/debt funds or a combination of both
  2. You can choose the funds you wish to invest in
  3. You can switch funds within the policy period to safeguard your portfolio or maximize your returns
  4. You can get reasonable tax deductions under Section 80C (up to Rs. 1,50,000) on premium payments. Even your maturity benefits may be tax-exempted under Section 10 (10D) in case your annual premiums are lower than Rs. 2.5 lakh. 
  5. With compounding and the ability to weather out temporary fluctuations, you can get stellar inflation-beating returns over 10-15 years. This is ideal for meeting long-term goals like higher education for children, buying a house, retirement, and so on. 

As you can see, ROMC is a nifty feature to have if you want that extra incentive at the completion of the policy tenure. The above-mentioned advantages should also be motivators for making your investment. Yet, you should remember that ULIPs have five-year lock-in periods, and you will have to pay charges/penalties upon premature withdrawal/surrender. Also note that ULIPs have several accompanying charges, which you should look at (aside from the mortality charge). All in all, ULIPs are some of the best choices in terms of building a sizeable future corpus and saving on taxes simultaneously. The earlier you start, the higher your chances of amassing a considerable amount of money in the future.

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