ULIP Fund Accounting: Unit Fund and Non-Unit Fund
One ULIP, two pockets of money. Here is how the insurer keeps them apart.
A ULIP (Unit Linked Insurance Plan) combines life cover with investment in market-linked funds. A small part of the premium pays for cover and the balance goes into a fund the policyholder chooses. The value of that fund, its NAV, rises and falls with capital markets and interest rates, and the investment risk falls on the policyholder, not the insurer.
That changes the accounts. The insurer is holding two different kinds of money under one policy: units that belong to the policyholder at whatever the market says they are worth, and the insurer's own margin for cover and costs. IRDAI's master circular on actuarial, finance and investment functions makes insurers keep the two apart in the unit linked Revenue Account.
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Unit Fund vs Non-Unit Fund
For ULIP business, the Unit Linked Revenue Account is segregated into Non-Unit Funds and Unit Fund. The reserve columns follow HDFC Life's accounting policy.
What it holds
Unit Fund
The units credited to policyholders
Non-Unit Fund
The insurer's side of the policy: charges taken, cover and costs
Reserve held
Unit Fund
Unit reserve
Non-Unit Fund
Non-unit reserve
How the reserve is valued
Unit Fund
From the NAV of outstanding units
Non-Unit Fund
Gross premium method
Risk it covers
Unit Fund
Investment risk, borne by the policyholder
Non-Unit Fund
Mortality and expense risk
| Unit Fund | Non-Unit Fund | |
|---|---|---|
| What it holds | The units credited to policyholders | The insurer's side of the policy: charges taken, cover and costs |
| Reserve held | Unit reserve | Non-unit reserve |
| How the reserve is valued | From the NAV of outstanding units | Gross premium method |
| Risk it covers | Investment risk, borne by the policyholder | Mortality and expense risk |
The ULIP Discontinued Policy Fund
When a ULIP stops being paid during the lock-in period, the money moves to a separate fund with its own reporting.
- check_circleIRDAI's Master Circular on Life Insurance Products (12 June 2024, para 40.1.1): on discontinuance in the lock-in period, the fund value less discontinuance charges moves to the discontinued policy fund, and risk cover ceases.
- check_circleThe policyholder gets a revival period of three years from the date of the first unpaid premium, and the insurer must inform the policyholder within three months (para 40.1.2).
- check_circleIn the Balance Sheet, Funds for Discontinued Policies are a separate head under Policyholders' Fund, next to Policy Liabilities, with two sub-heads: discontinued on account of non-payment of premium, and others.
- check_circleNotes to accounts disclose the number of policies discontinued, the product-wise percentage of discontinued to total policies, the number and percentage revived, and the charges imposed on discontinuance and readjusted on revival, in the Annexure IX format.
- check_circleHDFC Life books amounts payable on lapsed or discontinued linked policies when the lock-in period expires.
- check_circleLIC describes Funds for Future Appropriations in its unit linked funds as surplus from lapsed policies unlikely to be revived.
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Valuing Linked Investments
Unit prices are only as good as the asset prices behind them. SBI Life's accounting policy, for its linked business:
| Asset | Valued at |
|---|---|
| Debt securities (including G-Secs) with over one year to maturity | CRISIL prices |
| Debt securities with under one year to maturity | Yield to maturity basis |
| Money market securities | Historical cost, amortised on yield to maturity basis |
| Bank fixed deposits and reverse repo | Cost |
| Listed equity | NSE closing price, or BSE closing price if NSE is not available |
| Unlisted equity | Historical cost |
| Mutual fund units | Previous day's NAV |
Moving Money Between Linked Funds
- check_circleHDFC Life accounts for purchases and sales of equity, ETFs, InvITs, REITs and G-Secs between unit linked funds at the prevailing market price on the transaction date, or the last available price if there is none.
- check_circleFor linked business, HDFC Life works out profit or loss on sale of equity, ETFs, InvITs, REITs and mutual funds against weighted average book value.
- check_circleWhere a mutual fund's manager is controlled by the insurer or its promoter, a life insurer may put up to 5% of its Unit Linked Fund in it, against 3% of its Life Fund, Pension, Annuity and Group Funds (IRDAI master circular).
How ULIP Results Are Reported
- check_circleThe Revenue Account is prepared separately for linked, non-linked and health business, and for participating and non-participating policies.
- check_circleWithin the linked account, the Unit Fund and Non-Unit Funds are shown separately.
- check_circleSegregated fund reporting (Revenue Account, Balance Sheet, schedules and Annexure XI) forms part of the ULIP disclosures on the insurer's website.
- check_circleLIC, for example, lists Non Participating Unit Linked among its nine primary business segments.
Exam Traps
Linked premium is income when units are created (SBI Life: allotted), not on the due date or payment date. Investment risk in a ULIP is the policyholder's, not the insurer's. The unit reserve follows the NAV of units; the non-unit reserve is the one valued on the gross premium method. Linked charges are recognised when recovered (HDFC Life FY2026, SBI Life) or when due (LIC), never upfront at sale. On discontinuance in the lock-in period, risk cover ceases and the money goes to the discontinued policy fund; the revival period is three years.
FAQs
What is the difference between the unit fund and the non-unit fund in a ULIP?expand_more
The unit fund holds the units credited to policyholders, with a reserve measured at the NAV of those units. The non-unit fund is the insurer's side: the charges it takes and the reserve it holds for mortality and expense risk. IRDAI requires the Unit Linked Revenue Account to show the two separately.
When is ULIP premium recognised as income?expand_more
When the associated units are created. IRDA's financial statements regulations allow the due date for linked business to be taken as the date of unit creation. SBI Life words it as when units are allotted.
What income does a life insurer earn from a ULIP?expand_more
Charges recovered from the linked fund: fund management, policy administration and mortality charges, plus other charges where applicable. HDFC Life and SBI Life recognise them when recovered; LIC when due.
What happens to a ULIP discontinued in the lock-in period?expand_more
The fund value, less discontinuance charges, moves to the discontinued policy fund and risk cover stops. The policyholder can revive within three years of the first unpaid premium. In the Balance Sheet these sit under Funds for Discontinued Policies.
How are mutual fund units in a ULIP fund valued?expand_more
SBI Life's policy values them at the previous day's NAV. Listed equity in its linked funds is valued at the NSE closing price, falling back to BSE.
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