Unit Linked Insurance Plans (in short ULIPs) is a combination of insurance and investment. They provide life cover for the insured individual along with the option of investing in qualified investments like stocks, bonds or government securities. Here, the insured individual would be asked to pay the premiums monthly, quarterly, semi-annually or annually. A portion of it would go into securing life insurance and the remaining gets invested into different qualified investments. Investors of ULIPs can usually adjust their fund preferences all through the duration of their investment, thus giving them the advantage of flexibility.
Features of ULIPs
- Switch facility
You get the option to switch between different funds as per your risk appetite. You can go for equities if as an investor you are aggressive by nature. If you are the conservative kind, you can switch to debt or balanced funds from equities. During times when market fluctuations are major, having a greater exposure to equities could possibly bring down your corpus. In such cases, making a switch to debt funds can help keep your money safe. And when the market stabilizes, it would be a good idea to switch back to equities as they have the potential to fetch higher returns compared to other asset classes.
- Top-up facility
The top-up facility lets you enhance the amount of investment in ULIPs. It allows you to put an added amount over and above the existing policy. You can avail this facility anytime you wish during the policy term, however, you need to ensure that all premiums have been paid. You can also enjoy the same tax benefits on top-up premiums as regular policies.
- Partial withdrawals
One of the many advantage and unique aspect about ULIPs is the partial withdrawal facility. You, the policyholder, can withdraw partially from the Fund Value without affecting the plan continuity. Partial withdrawal can generally be made any time after completion of 5 policy years and not prior to that. Additionally, this will only be allowed after you have paid all your premiums and at the time when the policy is in-force.
- Tax-saving tool
ULIPs can serve as an excellent tax-saving tool. Deduction can be claimed on the money invested in ULIP under Section 80C (life insurance). The maximum you can claim under this section is ₹1,50,000. Additionally, under section 10(10D), the sum received on partial withdrawal or at maturity is tax-exempt, however, the condition associated with this is that the premium payable to the sum assured should not surpass 10%.
Read about: Types Of Life Insurance Policies
Charges associated with ULIPs
- Premium Allocation Charges - This will be deducted straightaway from the premium paid by the insured individual. This cost makes up for the initial expenses borne by the insurance provider while issuing the policy.
- Policy Administration Charges - This will be deducted towards the administrative expenses borne by the insurance provider for policy maintenance. All of the expenses incurred on paperwork and so forth shall be covered under this head.
- Mortality Charges - These charges are towards providing the insured individual with the insurance cover. This cost compensates the insurance provider should the insured individual pass away before the end of the policy term.
- Fund Management Charges - This cost is levied for managing the fund and is charged as a percentage of the value of assets. It is deduced prior to computing the fund's NAV. It must be noted that as the value of the asset goes up overtime, these charges may rise.
ULIPs are a good option if you are looking for products that give you a mix of insurance and investment. Research on all the ULIPs offered before you opt for one. You will find many options in the market, but it is important that you choose one that adequately meets all your needs. Compare the policies offered by different companies and look into their premiums, features, benefits and limitations. Also, before you shortlist a policy, make sure to keep your risk appetite in mind. Since fixed returns are not guaranteed in ULIPs, knowledge of your risk appetite will help you ascertain whether you want to go for an ULIP or go for another insurance plan. To compare and select the most suitable ULIP option, write to us on firstname.lastname@example.org or give us a ring at 86559 86559 and our customer support team will guide you.
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