A life insurance helps to financially safeguard the future of your family in case of your sudden demise. There are 7 different types of life insurance available that can be taken as per your need and requirement. Unit Linked Insurance Plan (ULIP) is one such type of life insurance. It helps you to save money for meeting your financial goals like buying a house, getting money for children’s education, etc.
What is Unit Linked Insurance Plan?
A Unit Linked Insurance Plan (ULIP) offers insurance and a means for investment under a single plan. It is a plan linked to capital market and offers flexibility of investing in equity or debt funds as per your capability to take risks. In short, it helps you avail dual benefits of investment and insurance.
When you invest in ULIP, the insurance company invests a part of your premium in bonds or shares. The remaining amount is used to provide you an insurance cover. You, as an investor do not need to get involved with tracking your investment regularly, as the task is taken care of by the fund managers in the insurance company. It even enables you to change portfolios between debt and equity-based fund. Ulips have a lock-in period of 5 years.
Types of Unit Linked Insurance Plan
Classification by Purpose
ULIPs can be classified according to the purpose they serve. Some of them are:
For Health Benefits: Diseases and disorders can strike us anytime, anywhere. United linked health plans provide financial assistance in times of personal crisis to meet exorbitant medical expenses.
For Children’s Education: Every parent wants a bright future for his/her child. To rule out the possibility of any kind of hindrance to build your child’s career, you can opt for child plans that are unit linked insurance plans, a type of life insurance. These are a combination of investment and insurance.
Classification by Death Benefit
Type I Plan: Under this plan, the nominee gets the higher amount out of Sum Assured or Fund Value as death benefit. However, if the assured dies during the initial years of policy, when the value of the fund is lower than the sum assured, the insurer will pay the agreed sum to the nominee. However, when the fund’s value is more than the sum assured, the death benefit is the total collected amount of the fund.
Type II Plan: The nominee gets the sum of both i.e. Sum Assured as well as Fund Value in the event of the demise of the policyholder. The insurance company might charge extra from the policyholder for the added risk it assumes under the type II policy.
Documents Required to Purchase ULIP
Before purchasing a ULIP, keep the following documents in order to avoid any delay.
- Proof of age: Driving license, passport or voter’s ID
- Proof of identity: PAN card
- Proof of address: Driving license, passport, voter’s ID
- Proof of income: income tax returns, salary slips, banks statements, etc.
Factors to Consider Before Purchasing
Before finalising on buying a ULIP, you should be clear about the reasons behind getting it and how it will help in making your financial status better. Let us look at some that can help you in taking the right decision.
Financial goals: If you aim to create wealth for future securities like family betterment, child’s future and marriage and your retirement, ULIP can be one of the bankable options.
Comparing plans: First and foremost, you need to select a policy suitable for your requirements. Then you need to compare the available ULIP plans in the market related to expenses, premiums, performance and the nature of funds it invests in to determine the returns of that particular ULIP.
Types of Investment Funds under ULIP
|Fund Name||Fund Objective||Risk Rating|
|Growth Fund||Equity exposure in the fund is 20% to 70%
The remaining 30% – 80% is used to invest in debt instruments across Government, Corporate & Money Market papers
|Growth Super Fund
|The focus on Equity markets with 70% of the fund is invested in equities at all times.
The remaining 30% is invested in debt instruments across Government, Corporate & Money Market papers
|Conservative Fund||Primarily, the investment is in debt instruments such as Government securities, Corporate Bonds & Money Market papers issued by Government of India/State Governments. To some extent, investment is also in Corporate
Bonds and Money Market Instruments. The equity exposure is up to 15%
|Balanced Fund||Investment is in debt instruments like Government securities, Corporate Bonds & Money Market papers issued by Government of India/State Governments. To some extent, it is also in Corporate Bonds and Money Market Instruments. The equity exposure is between 10% and 40%||Medium|
|Secure Fund||Invests in debt instruments such as Government securities, Corporate Bonds & Money Market papers issued by Government of India/State Governments, Corporates and Banks
As prescribed by IRDAI, the fund is also invested in Money Market Instruments
No investments in equities
Riders under Unit Linked Insurance Plan
As an investor in ULIP, you can opt for additional benefits, also called riders, by paying some extra amount. These riders add value to plan and also help you to customise your plan to meet your present and future financial requirements. Listed here are the various types of riders offered to you:
Term Rider: For term rider, the insurer offers a lump sum of monthly income to the nominee if the insured dies during the term of the policy. This is beneficial when the insured is the sole bread earner in the family. The stipulated amount received through term rider every month assures sufficient money to carry out the daily and monthly expenses for the family members. In short, it takes care of the basic financial needs.
Permanent Disability Benefit and Accidental Death Benefit Rider: The insured may meet with an accident, which can lead to either permanent disability or death during the duration of the policy. In case the insured individual dies, the nominee is entitled to base plan sum plus the rider benefit paid by the insurer. This rider mainly provides a supplementary coverage to the family of the life assured. In case, the accident leaves the life assured permanently disabled or handicapped, he/she may not be in a position to work or earn money and pay the premiums. In such cases, the life assured will get the rider cover through Permanent Disability Rider.
Critical Illness Rider: Fatal diseases like cancer, heart attack, paralysis, stroke, etc. are becoming increasingly common. The treatments and tests of such illness burn a hole in your pocket, wherein your financial planning can go for a toss. Here, Critical Illness Rider comes to the rescue, and takes care of all the expenses to a certain extent. The insurance company provides a lump sum amount to meet the medical contingencies. The payment is made once the life assured is diagnosed with any of the critical illnesses mentioned in the policy document of the insurance company.
Waiver of Premium Rider: In case of death or permanent disability of the life assured, he/she might not be in a position to earn and pay the premiums. In most of the cases, the policy is terminated if the premium is not paid on time, and hence, the maturity or death benefit cannot be claimed. However, with the Waiver of Premium Rider, the premiums are waived off due to disability, critical illness or death during the term of premium, and policy continues without any hurdle.
Unit Linked Insurance Plan Claim Process
In case of the sudden demise of the insured due to reasons covered under the policy, you need to make claims. You should be aware of the process to make it a smooth process.
- In case of any untoward incident, immediately inform your insurance company
- After the registration of the claim, share the required documents, including the claim form
- Once the case is verified by the company, it will transfer the payment in the mentioned account
- In case of any doubt, the claim can be rejected
Documents Required for Claim Process
Certain important documents are to be submitted to the insurance company for a hassle-free claim process. Let us look at some of them. These documents can vary with the insurance company.
- Duly filled in claim form
- Policy documents
- Medical certificate
- Photo ID and address proof of the claimant
- Police FIR and post mortem report for accidental death
- For death due to illness, certificate and medical records from the doctor/hospital
Cases Where You Can’t Claim Unit Linked Insurance Plan (Exclusions)
Not all kinds of situations are covered by ULIPs. These are also called exclusions. Before finalising the insurance plan, you should understand these cases so that you don’t face problem while making claims.
- Death by accident under the influence of alcohol
- Death due to suicide
- Death due to the influence of drugs or alcohol
- Death due to racing or other dangerous sports
Advantages of Buying Unit Linked Insurance Plan
A ULIP comes with various benefits for the policyholder and his/her family. Let us look at some of them.
Provides Flexibility: It offers the flexibility to change the fund as per the needs. Also, the insurance company allows few switches without any extra cost. You can even partially withdraw from the fund, again free of cost. In case, you need to invest an extra sum of money at any point of time, you can do it as a top-up over regular premiums.
Great for Long–Term Goals: ULIP is a viable option to meet your long-term goals like buying a new car or a house, marriage, etc. mainly because the amount gets compounded. The net returns are even higher at the end of 5 years compared to having a zero investment and retaining the amount in the fixed deposit amount or a savings account.
Create Corpus for Family’s Needs: The opportunity to earn market-type returns through ULIPs helps to create a huge corpus or fund for your future. Eventually, this amount can be used for your and your family’s betterment, the child’s future, and marriage.
Financial Security after Retirement: If you are planning to build a corpus for your retirement, ULIP can be a wise decision because of high returns that you get.
Income Tax Benefits: As a policyholder, you are eligible for tax exemption under Section 80C of the Income Tax Act, 1961 for the premium you pay towards the policy (up to Rs.1.5 lakh a year). Moreover, the returns that you earn out of the policy are exempted from income tax under Section 10(10D) of the Income Tax Act.
Q1. What is a free-look period?
Free-look period is the time within which you can cancel the plan and opt out of the same. This period generally starts from the policy date and lasts for a period of 15- 30 days.
Q2. Can I partially withdraw money from my ULIP plan?
Yes. ULIPs do offer such liquidity. However the limit may vary from provider to provider.
Q3. What is a lock-in period?
A lock-in period in a ULIP plan is the time for which the money invested in a ULIP fund is locked and cannot be taken out. It generally consists of a period of 5 years post which you can go for partial withdrawals.
Q4. Will I get my premium back if I opt out of the policy within the free-look period?
Yes. If you do so in the free-look period, company will return the premium paid although, it may deduct applicable fees and taxes on the same.