Let us first understand as to what is a ULIP plan. It is Unit Linked Insurance Plan, ) is known for not only securing the future but also for providing secure returns on your investment. The concept of ULIP is a fusion of investment in capital markets and that of life insurance. For people who wish to invest in capital markets along with choosing risk cover for their loved ones, ULIP would be the ideal choice. After the policyholder’s death, the beneficiaries get the death benefits like any other policy, but the money invested is not idle in ULIP. The insurers invest your premium amount in the capital markets. You can enjoy the benefits of investing in the share market in addition to your investment plans.
How Does ULIP Work?
- Just like a standard insurance plan, you need to pay a yearly premium for ULIP.
- Only a portion of your premium is used for providing the insurance cover.
- The remaining amount is invested in the fund according to the plan chosen by a policyholder.
- The fund can be debt, equity, or both.
- The beneficiaries will get insurance cover or the market fund whatever is higher based on the ULIP plan chosen by the policyholder
- Like mutual funds, the insurer will pay a lot of ‘units’ according to your money invested in the market.
- These units are ranked, and the net asset value (NAV) is calculated.
- With continually changing market conditions, the NAV of your unit may vary.
- The NAV also depends on the quality of investment made by your insurer.
- NAV is basically the key factor determining the quality of investments
Who Will Need A ULIP?
People Seeking Dual Benefits
With a ULIP, you are guaranteed that your money is not just gathered but actively used to boost up your wealth. ULIP gives results for both – your savings and investments, which are considered to be the most essential wealth management aspects.
Investors Who Lack of Time
People who find it hard to take out time for investing but want to save money through investments, can choose the ULIP plan. With a ULIP investment, there are dedicated fund managers for investors who do not find much time to keep track of their investment portfolio.
If a person wants to enter the stock market for about 15 years or more, he/she can opt for a ULIP. Whereas you can withdraw from the policy (partially) after five years. After withdrawal, you need not pay the surrender charges. But, in order to get maximum benefits of the plan, you must invest for medium/long time period.
Advantages of ULIP
The perfect blend of investment and insurance is what makes ULIP different from the standard insurance policy. You get to choose from the various fund options based on your risk profile. ULIP gives you the power of choosing your premium, switch your fund, and to even withdraw a portion of your money after a specific time period.
Additionally, following are the benefits you can avail by investing in ULIP:
To Change Life Cover
With a ULIP, you get the option to change your policy coverage at the time of buying the policy. Some policies allow you to increase the coverage over the term to complement your change in preferences over time.
To Choose the Fund Option
Most ULIP plans come with a choice between debt, equity, or balanced options for funds. Accordingly, you can choose the best ULIP plan that aligns with your risk-taking capacity. If you wish for maximum returns on your investment, you can switch between the funding options with the change in market value.
To Opt For Rider Facility
In ULIP you have got an option to choose a rider facility that gives you additional facility. You can choose the unit linked accident and disability benefit rider to increase the coverage amount that the family receives after an accidental death. Also, the cover will be continued in case of a disability due to the accident.
To Change the Premium Amount
You have an option to pay a top-up amount above the premium. You can avail this option in order to get the maximum returns on the investment.
ULIP offers unmatched tax benefits on buying and at all the stages of the policy. The following are the stages of advantages of a ULIP:
Under Section 80C and Section 80D, the ULIP policy is exempted from tax payment.
The money you receive throughout the term of your investment is not taxable.
You can switch between the fund options (debt and equity) which is not taxable.
Under Section 10(10D), the money received at the maturity of the ULIP is not taxable.
The ULIP mechanism is transparent, and you can monitor your investment at any time. Following are some of the features offered under ULIP:
When you decide to buy any insurance, it is your right to ask for assistance to get more in-depth knowledge of the insurance. You can ask for the life cover of the policy, usage of the premiums, and the charges deducted during the term. You must also ask the ways to boost up your cash value by choosing the right policy.
Brochure and Feature Documents
After getting a fair idea of the policy, you must go through brochure or feature documents provided by the insurer. This step ensures that you understand and get a full knowledge of the policy you decide to zero upon. Also, you must ask for the benefits offered by the policy.
ULIP and other insurance plans come with a free-look period. This is the time slot of 15 days within which you can return the policy if you are not satisfied with the results. The documents of the policy will mention some deduction charges in case you decide to return the policy. After the deduction, you get back the rest of the premium paid.
NAV (Net Asset Value)
Though your burden of keeping a watch on your policy is washed away with a ULIP, you must make sure that you check the NAV updates given by the insurer. Generally, the insurer will provide you with a daily update of your NAV. NAV is basically the price at which your units of funds are being purchased. You can monitor the increase and decrease of your NAV with the daily updates.
ULIP is generally preferred for a long-term or middle term period. This makes you follow a systematic saving procedure. Saving for a long-term goal is usually avoided to fulfill some short-term goals. Buying a ULIP will be a medium to save money in a disciplined way.
Investments in ULIP
The following are the investments that have to be made to buy a ULIP:
- Premium Allocation Costs: For the cost of marketing and distribution. This is deducted from your premium payment which is higher in the initial stages and decreases gradually.
- Mortality Costs: To provide insurance cover. This depends on the mortality rate of the insured person.
- Administration costs: For general administration of the ULIP. This is deducted from the premium on a monthly basis.
- Fund Management Costs: For managing the funds for your investments.
Before deciding about one ULIP plan, you would want to know more about some ULIP plans in India. To make your research easier, here are some of the prevalent ULIP plans in India:
|Premium Allocation Charge
|Policy Admin Charge
|Number of Free Switches (per year)
|Bajaj Allianz Future Gain
|0 % – 1.5 %
|ICICI Prudential Wealth Builder
|24,000 – 48,000
|3 % – 4 %
|50 (per month)
|Aegon Life iMaximise Secure Plan
|24,000 – 36,000
|100 (per month)
|PNB MetLife Smart Platinum
|30,000 – 60,000
|1.25 % (per annum)
|Tata AIG Life Invest Assure II (Balanced Fund)
|75,000 – 1,20,000
|5 % (per annum)
|0.25 %(per annum)
|SBI Life Wealth Assure
|3 % (per premium)
|45 (per month)
|SUD Life Dhan Suraksha Plus
|6 % (per annum)
|6000 (per annum)
|LIC Market Plus-I Growth Fund
|5,000 – 30,000
|60 (per month)
|HDFC Life Pro Growth Plus
|2,500 – 10,000
|2.5 % (per annum)
|500 (per month)
|MAX Life Fast Track Growth Fund
|25,000 – 1,00,000
|2 % (per premium) – 4 % (per annum)
|1,500 (per annum)
ULIP is considered to be one of the most dynamic insurance schemes providing the best of both policies. You can compare the best ULIP plans online and choose the one that suits your needs and financial goals.