ULIP - Unit Linked Insurance Plan
Unit Linked Insurance Plan (ULIP) is one sort of life insurance that, in addition to providing protection, assists you in creating wealth to accomplish your financial goals. These ULIP plans require policyholders to pay premiums, and a portion of the premium is used to provide life insurance coverage. The remainder is combined with the assets of the other policyholders and invested in debt and equity securities.
What is ULIP?
A ULIP is an investment and life insurance plan that allows you to invest in debt and equity funds for wealth growth while providing life insurance coverage.
In other words, ULIPs provide a fund balance with equity and debt components and can switch between the two as market conditions change. Life insurance, on the other hand, protects your life ambitions. So, it is a perfect blend of risk cover and investment.
Importance of ULIP
It’s essential to make the right choices in life. All these choices will help you have a fruitful life. Unit Linked Insurance Plans mature to provide you with advantages of investment and the comfort of life protection. Thus it is enormous.
Investment combined with life insurance
You can be sure of life insurance coverage and market-based investments following your risk profile with a ULIP policy. It is cost-efficient to settle the risk and increase your wealth.
Adaptability
ULIP means flexibility, enabling you to adjust the strategy to meet your financial needs. Benefits from ULIPs are significant because of their adaptable qualities.
Financial Goals
You may have several financial objectives. You need an investment portfolio and a consistent investing routine to support that. You must include ULIPs in your portfolio because they can help you earn good returns by making long-term investments in capital markets.
Secured Retirement
When you have some additional money, you can add more with the top-up option in ULIPs. All of these will enable you to amass enough wealth so that you may enjoy retirement without concern.
Low Stress
As soon as you begin a ULIP, the life insurance company's fund managers are in charge of growing your money. There are no financial hassles for you.
Benefits of ULIP
There are several benefits that ULIPs offer investors, such as
Tax Benefits
ULIPs provide tax advantages through tax-free maturity as a life insurance product. However, the type of ULIP invested will determine this tax benefit because equity funds may be subject to a 15 per cent tax under certain circumstances.
Low Charges
ULIPs don't have a lot of fees attached to them. For the first ten years, IRDAI has set a cap on ULIP annual charges at 1.25-1.5 per cent p.a., making them comparable to mutual fund fees.
Transparency
With the aid of the characteristics like the product brochures, free-look period, NAV, etc. charging structure of ULIPs is visible and enables you to make wise decisions.
Goal-Based Savings
ULIPs support disciplined investing because they are made to help you achieve important financial objectives. Without such a strategy, you risk sacrificing your long-term objectives to meet immediate requirements.
Classification of ULIPs
Many unit-linked insurance plans exist depending on the traits used as the basis and let us explore them.
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ULIP for Wealth Collection
If your purpose is to increase your wealth gradually, these ULIP policies encourage future financial goals. Usually, people in their twenties and thirties explore these plans.
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ULIP for Retirement
To keep up with the post-retirement life, these ULIPs offer great support. Up to the policy's term, you must pay the premium, which will be collected in the corpus, which a policyholder receives in the form of annuities once they retire.
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ULIP for Health Benefits
Money flows so fast in a medical emergency. In order to keep the procedure going, ULIPs provides financial aid to the policyholder in times of distress.
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ULIP for Children Education
A child's education may be supported by some ULIPs. These plans safeguard your child's future in any essential or unanticipated circumstance, such as your demise.
Classification by Death Benefit
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Type 1 ULIP Policy
As a death benefit, the nominee receives the greater of the sum assured or the fund value. If a policyholder dies during the insurance period, the insurer will pay the sum assured rather than the fund value because the sum assured is more significant.
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Type 2 ULIP Policy
In the case of the policyholder's death, the nominee receives the amount of the sum assured and fund value. The rates for these plans are higher because insurance companies are taking on more risk.
Types of Funds ULIPS offers
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Cash Funds
Your corpus will be invested in money market funds, cash and bank deposits, and other low-risk money market instruments when you purchase one of these ULIPs.
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Equity Funds
These ULIP plans employ the premium you pay to invest a portion of it in equity funds. Due to an active link to the stock market, these have a more excellent risk ratio.
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Debt Funds
ULIP invests customer funds in debt securities like bonds, which have lower risks and potential returns.
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Balanced Funds
These are the most reliable and wise investments because they change the amount of money that travels to various locations. It proportionately allocates the total investable money among equity investments in high-risk equities, firm stocks, etc.
Different ULIP Charges
The life insurance company will charge you some amount for maintaining the funds and making investments. Hare, are some of those charges:
Mortality Charges
These charges are imposed in order to offer the ULIP plan's life insurance coverage. These are deducted monthly and rely on several variables, including age and the sum assured.
Premium Allocation Charges
A predetermined percentage is deducted from the ULIP plan premium that you initially paid. Initial, renewal, and commission charges are among the fees.
Partial Withdrawal Charge
After the lock-in time has ended, you can partially withdraw the funds from ULIPs. Some programmes limit the number of free withdrawals and charge you for any withdrawals you make after reaching the limit.
Fund Management Charge
These fees are assessed for managing your ULIP funds and deducted before determining the NAV. Typically, equity funds pay the highest fees, whereas non-equity funds pay lesser fees.
Switching Funds Charge
These fees are assessed when transferring money between the various accessible solutions. The switches are free for a limited period each year, after which there is a fee.
Policy Administration Charges
These charges are assessed monthly by cancelling the corresponding units from each selected fund, with a fixed percentage of the premium used to calculate them.
Why ULIPs are a good choice?
You can acquire significant wealth with the investment component of a ULIP plan while also receiving insurance. Still, wondering why you should get a ULIP? These points will help.
Adaptable Investment Options
Depending on your risk appetite, you can switch your investment between stock, debt, and balanced funds. Other than that, top-up plans enable you to increase your investment in your existing savings.
Dual-Benefit
ULIP is India's first financial product that provides investment and life insurance coverage through a single investment. As a result, you don’t have to purchase separate insurance and investment plans to safeguard your future.
Tax Exemptions
Returns you will get at maturity will be eligible for tax deductions under Section 80C of the Income Tax act. Every year, an investor can receive up to INR 150,000 for his ULIP investments. Similarly, the returns you receive upon the maturity of your ULIP policy are tax-free under Section 10D of the Income Tax Act. Furthermore, the sum received by the nominee upon the insured's death is excluded from taxation under Section 10 (10D) of the Income Tax Act.
Growth Benefits for Long-term
The good part with the ULIP plans is that they benefit the long term. The money can be used for paying the home loan, children’s education etc.
Sum Assured
When you invest in a ULIP, the insurance coverage ensures that in the event of the policyholder's untimely death during the insurance period, a certain amount of money will be paid to the nominee. The sum assured is this predetermined figure, which is exempt from taxes.
ULIP Plans vs Traditional Plans
To clarify, the table below will help you understand the difference between ULIPS and traditional plans. All these plans offer something different.
| CRITERIA | ULIPS | TRADITIONAL PLANS |
|---|---|---|
| Meaning | Unit Linked Insurance Plan (ULIP) is one sort of life insurance that, in addition to providing protection, assists you in creating wealth to accomplish your financial goals. | Traditional insurance policies often guarantee maturity payout and invest in low-risk return options. |
| Type of Plan | Investment + Insurance Plan | Insurance Plan |
| Liquidity | Lock-in period(5 years) | Locked till maturity |
| Risk Associated | Moderate Risk | Low-Risk |
| Loyalty | Long-term ULIP investments earn loyalty advantages | Some traditional plans provide policyholders with loyalty bonuses if they keep their coverage for the entire term. |
| Investment | The money is invested in debt, equity, or hybrid funds, as per the investor's preference. | According to the insurer's decision, the funds are invested in equities and Debt securities. |
| Income Tax Benefit | ULIP plans provide tax benefits under Sections 80C and 10(10D) of the Income Tax Act. | You also get similar income tax benefits U/S 80C and 10(10D) of the Income Tax Act |
ULIP Plan Calculator
Users can find out the returns they stand to earn after the policy period using the online tool known as the ULIP Calculator, which is accessible on the websites of insurance companies. It assists in calculating the future value of the investment made.
Some ULIP plan calculators also allow for a comparison of the returns each ULIP will offer for the given period, enabling the policyholder to select the best ULIP plan that suits their needs. It’s always good to have clarity before investing heavily, and the ULIP calculator is the one that allows you to get better clarity.
ULIP Riders
A policy can be improved by including add-ons to provide coverage for specific events. Depending on the insurer, several riders are available, and they can be negotiated and altered while buying insurance.
Accidental Death Benefit Rider
This rider offers accidental death payments in addition to the ULIP's life insurance protection. In this instance, in addition to the promised rider sum, the nominee also receives the ordinary ULIP plan's death benefits. It comes with a dual benefit.
Waiver of Premium Benefit Rider
A waiver of premium rider guarantees that all future premiums toward your ULIP plans are waived, ensuring that your investment and life insurance continue uninterrupted if your regular income is adversely affected.
Accidental Permanent Total/Partial Disability Benefit Rider
This rider may provide a lump sum payment if an accident results in the life assured a whole or partial disability, depending on the terms and conditions of the rider.
Family Income Benefit Rider
A monthly death benefit amount, which typically equals 1% of the rider sum assured, would be paid for the duration of the policy, as indicated in the policy provisions if the policyholder passed away.
Critical Illness Benefit Rider
You can protect yourself and your family against the financial effects of such illnesses by adding a critical illness benefit rider to your ULIP policy. This allows you to receive a lump-sum payment in the event that any of the critical illnesses strike you.
Best ULIP Plans in India 2024
Despite the market having various ULIP plans, some stand out due to their advantages for insurance and financial purposes. We have curated a list of the best ULIP plans to make it easier for you.
| Name of the Company* | Name of the Plan | Entry Age |
|---|---|---|
| ICICI Prudential | Guaranteed Income for Tomorrow (GIFT) | 18 minus the policy tenure - 60 years |
| HDFC Life | Click 2 Invest | 0-65 years |
| HDFC Life | Click 2 Wealth | 0-60 years |
| BajajAllianz Life Insurance | Future Wealth Gain | 0-60 years |
| Life Corporation of India | LIC Endowment Plus | 8 - 55years |
* We RenewBuy does not endorse any specific insurance company or insurance product offered by any insurer. This list is just an illustration of the plan offered by different life insurance companies.
How to Buy ULIPs Online?
ULIPs, like any other insurance plan, can be bought online. Buying online is an easy, simple, and hassle-free process.
- Visit the insurance company’s website.
- Select the ULIP Plan that you want to invest in.
- Select the plan tenure & the amount of premium to be paid.
- Make payment
- Credit cards, debit cards, and other payment methods are accepted.
Documents Required for ULIPs
You must have the essential documents with you when purchasing a ULIP to verify them and for investment considerations. The following are some of the most crucial documents needed:
- Age Proof: Driving license, passport or voter’s ID
- Identity Proof: PAN card
- Proof of address: Passport, driving license, voter’s ID
- Proof of income: banks statements, Income tax return, salary slips, etc.
Myths About ULIPs
When it comes to ULIPs, there are a lot of myths about them. This post’s goal is to clarify things for you.
ULIPs are Costly
You are erroneous if you believe that ULIP investments have hefty charges. If a consumer holds an investment for more than ten years, the IRDAIcaps ULIP investment charges.
Risks are High
In ULIPs, you get multiple investment options. Therefore, it depends on the risk you want to take while buying a ULIP plan. Debt funds have low risks, balanced funds have medium risks, and equity funds have high risks.
Not such Good Returns
The nature of your investment determines the quality of your returns. It’s a myth that you won’t get decent returns whatever you invest.
ULIPs can’t be discontinued
You won't pay any surrender or exit load fees if you decide to withdraw your money before the lock-in time. However, unless there is a true emergency, it is not recommended to do so.
Returns are Doubled quickly
When you invest via ULIP, there is a lot of miss-selling about your returns being doubled quickly. But, in reality, it depends on the market.
Factors to Remember when Buying ULIPs
Before making a final choice, you should be certain of your reasons for buying a ULIP and how it would benefit your financial circumstances.
Financial Goal
If you want to build wealth for future security purposes such as family betterment, child's future and marriage, and retirement, ULIP is one of the best solutions, as the rate of return on investment is reasonable.
Comparing Plans
You must choose insurance that is appropriate for your needs. Then, to assess the returns of that particular ULIP, you must analyse it in terms of costs, premiums, performance, and the types of funds it invests in, there are numerous ULIP plans on the market.
Claim Process
You must file claims if the insured dies unexpectedly for circumstances covered by the policy. You should be aware of the method so that everything goes as planned.
- Inform the insurance company.
- After registering the claim, distribute the necessary documentation, including the claim form.
- The payment will be transferred to the specified account once the company has verified the case.
- If there is any discrepancy, the claim will not be processed.
