ULIP

ULIP – Unit Linked Insurance Plans

ULIP or Unit Linked Investment Plan is a financial instrument which is a combination of both insurance plan and investment option. It is a Life Insurance product, which provides risk cover and various investment options to invest in different number of qualified investments such as stocks, bond or mutual funds. The investments made are subject to risk associated with the capital markets, thus the investment portfolio needs to be borne by the customer.

In 2010 IRDA capped the annualized charges of ULIP’s at 2.25% for the first 10yrs of the policy term.

Benefits of Buying a ULIP Plan:

  • ULIP Plans offer a flexibility to choose the option which is not just applicable to one aspect of the policy but also comprehensive in nature. It provides the option to choose the Life cover, Rider, Fund, etc.
  • ULIP provides a transparency to the policyholder. Unlike other tools, it offers high flexibility, clear benefits & features, illustrative brochures and free-look period to make sure that the policyholder are sure before starting their investments.
  • The money invested in ULIP’s are considered from different funds and also protected. It is beneficial for those customers who would like to take advantage of the market without actually participating in the stock market.

Types of ULIP Plans:

  • ULIP for Retirement: Offered to those customers who would like to build a corpus for their retirement use. It helps the customer plan their future by paying premiums while they are employed.
  • ULIP for Wealth Creation: It helps customer to invest and save their hard earned money to create a good corpus for securing their future needs.
  • ULIP for Children Education: it helps the customer build their child’s dreams and future when you are not around. In case if due to any unfortunate circumstances if you are not alive, such plans will take care of their higher education cost and future expenses.
  • ULIP for Health Benefits: These policies are aimed at providing financial assistance at times of medical emergencies or hospitalizations. It provides you an option of choosing special riders such as Major Critical Illness or accidental benefits.

Types of Funds under ULIP Plans:

The Investment plans categorized under the ULIP’s are:

  • Equity Fund
  • Income, Fixed Interest and Bond Funds
  • Cash Funds
  • Balanced Fund

General Description

Nature of Investment

Risk Category

Equity Fund

Primarily Invested in company stocks with the general aim of capital appreciation

Medium to High

Income, Fixed Interest and Bond Funds

Invested in corporate bonds, government securities and other fixed income instruments.

Medium

Cash Funds

Sometimes known as Money Market funds – Invested in cash, bank deposit and money market instruments

Low

Balanced Funds

Combining equity investments with fixed interest instruments

Medium

 

ULIP Charges:

Below given are the Key charges related to Unit Linked Insurance Plans:-

  • Premium Allocation Charges: Charges levied to compensate for the expense incurred towards issuing of the policy which involves distributor fee, medical expenses, and cost of underwriting of funds
  • Policy Administration Charges: It is aimed at recovering money that goes into maintaining the ULIP Policies. It involves cost of paperwork, premium intimation, etc.
  • Partial Withdrawal Charges: In case the insured would like to partially withdrawal some amount for some urgent personal requirement, the same will be allowed but there would be a cost associated with it and would be deducted from the fund value.
  • Surrender Charges: This charge is deducted only when the insured would like to prematurely cancel the plan and encash the fund value.
  • Mortality Charges: It is charges on a monthly basis and is for compensating the insurance company in case a policyholder does not live to the assumed age.
  • Fund Management Charges: This charge is for the management of the fund and is levied as a percentage of the value of assets.
  • Fund Switching Charges: It provides the flexibility to choose the fund option as well as switch between them in case the insured wants to. A charge for switching the fund type.
  • Discontinuance Charges: When an investor discontinues the plan prematurely with-in the lock-in period (5yrs), a small fee is charged to the insured for the same. This is preset by the IRDA and hence common for all policies.

 

Tax Deduction under Section 80C

Deductions are available under Section 80C of the income tax act, provided the sum assured is at least 10 times the annual premium. This is within the overall limit of Rs. 1,50,000 of Section 80C. Partial withdrawals are allowed after 5yrs under a ULIP plan. However, there are no tax on the withdrawals or maturity amount for ULIP’s provided the sum assured is at least 10 times of the annual premium.

Different ULIP Plans available in India:-

  • HDFC Life Click2Invest
  • SBI Life Insurance eWealth
  • Aviva Life Insurance – iGrowth
  • Bharti Axa eFuture Invest
  • Bajaj Allianz Life Insurance – Fortune
  • Bajaj Allianz Life Insurance – Future Gain
  • ICICI Life Insurance – Wealth Builder
  • Aegon Life Insurance - iMaximize

 

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