One of the most popular investment options, ULIP or Unit Linked Insurance Plan is a type of financial tool that offers the benefits of both investment and insurance. Individuals who have a high-risk appetite and are looking forward to diversifying their investment portfolio can buy ULIPs. Read on to learn more about ULIPs.
Key Features of ULIPs
|Parameters||Features of ULIP|
|Defination||Insurance cum investment plan which invests your money in various funds such as equity, debit, hybrid, etc. depending on your risk preference and life goals|
|Withdrawal||Comes with lock in period of 5 years only after which withdrawals are possible|
|Switching||Free fund switches in a year, not subject to taxation|
|Income tax benefit||Tax benefits under section 80C and 10(10D) of the Income Tax|
|Charges||Charges such as administration, mortality charge, fund management charges are applicable|
|Investment||Money is invested in debt, hybrid, equity funds basis your risk preference|
|Risk||Risk element is present as the money is invested in the markets|
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What is ULIP?
ULIP or what is commonly called Unit Linked Insurance plans is a combination of life insurance and investment. On buying ULIP plans, policyholders are required to make regular premium payments. ULIPs are thus a popular financial instrument that creates a corpus for you, thereby maximizing your savings.
One portion of the premium paid for ULIPs, or Unit Linked Insurance Plans, is used for life insurance, while the other is used for investment. After charges such as fund allocation charges, policy administration charges, fund management charges, and mortality charges have been removed, the investment is made.
Tips to Buy ULIP Plans
ULIPs are one of the most popular investment plans that offer great returns in the long run. With so many such plans in the market, it often becomes challenging to pick the right one for yourself. So, to help you out, we have enlisted some of the best ways in which you can select the right plan for yourself:
- Check Your Investment Goals: Before you buy a ULIP plan, you must first analyse your investment goals. Depending on your current income and your future goals, choose a plan that best suits your requirements. It is also important to analyse what are your financial goals in the coming, based on which it will become easier to buy the right plan.
- Risk Appetite: ULIPs are one of those investment plans that involve high-risk factors. So, before buying it you must analyse your risk appetite and only then buy it. A plan should only be bought if you are ready to bear all the market fluctuations taking place.
- Flexibility: There are different fund options such as equity, balanced, or debt funds. However, when it comes to buying ULIP plans, you have the opportunity to switch from one fund to another. This means that you should always look for ULIPs that offer flexibility when it comes to switching funds, withdrawals, additional contributions, and more.
- Claim Settlement Ratio: Before buying a ULIP plan, you must always check the claim settlement ratio of the insurance company. You should always buy it plan from a company that has a higher claim settlement ratio.
- Compare ULIP plans: Another way in which you can buy the right plan for yourself is by comparing the different ULIP plans. Doing so will help you understand what are the inclusions and exclusions under different plans available and thus will be helpful in choosing the right plan.
- Solvency Ratio: The solvency ratio is another factor that you need to consider while buying a ULIP plan. The solvency ratio refers to the ratio between the capital to the risk the insurance company owes. As per IRDAI guidelines, an insurance company should have a solvency ratio of at least 1.5.
- Features: Every ULIP plan available in the market is unique in its own way and comes with different features and benefits. So, it is very important to have a clear idea about these features and benefits, and only then proceed with buying one.
- Investment Strategy: There are different types of ULIP plans available such as ULIPs for children, retirement, and many more. This makes it very important to have a proper investment strategy before investing in this plan as these plans cater to specific investment goals. Thus, you need to align your investment strategy with your goals so that you can enjoy wealth creation in the best possible way.
Key Features of ULIP Plans
Listed below are the different key features of a ULIP plan that you should know about:
- It offers flexibility to switch between the different funds available so that you can meet your financial goals. This plan also allows you to partially withdraw your accumulated wealth as and when required.
- ULIP offers dual benefits of investment and insurance. Thus, with a single plan, you can enjoy the benefits of both wealth creation and life protection.
- While investing in this plan, you are eligible to redirect the premium you pay towards it in the future toward different fund options. All you have to do is inform your policy number and choose the fund towards which you want your premium to get redirected.
- It allows transparency, lets you know about the performance of the funds, and enables NAV tracking.
How Does ULIP Work?
The premiums you pay to buy and keep your ULIP are divided into two parts. One-half is utilised to give life insurance. The balance of your premium is invested on your behalf. Our fund managers will guide you through the process, but the final decision on which funds to invest in is yours.
Let us understand this with an example of an individual who has bought a ULIP plan for 20 years and pays a premium of Rs. 50,000 with a sum assured of Rs. 5,00,000. So, when you have a ULIP, you will get death benefits of Rs. 5,00,000 in the event the policyholder meets an unfortunate demise as well as maturity benefits.
Benefits of Buying ULIP
There are multiple benefits of buying a ULIP plan such as the following:
- Market Linked Returns - ULIPs helps in earning market-linked returns by dedicating a portion of the premium invested into debt and equity instruments. Based on the market performance of your funds, you would be able to create a substantial fund for yourself and your family.
- Life Protection with Savings - ULIPs provide the dual benefit of life insurance protection as well as savings. With it, you can thus get dual benefits of insurance and investment at affordable rates.
- Flexibility - ULIPs, or unit-linked insurance plans, allow you to switch between investment funds, make partial withdrawals in an emergency, and invest extra cash with single premium additions.
- Tax Benefits - Premium paid towards ULIP plans is eligible for tax deduction under Section 80C of income tax 1961, up to a maximum of Rs. 1.5 lakh. Also, the maturity/death benefit received under the ULIP plan is free from tax under Section 10(10D) of the Income Tax Act 1961.
- Multiple Options: On buying it, you have the option to choose from multiple funds such as debt funds, equity funds, and more. This gives the option to the policyholder to choose the right fund based on the budget and requirements.
- Transparency: With Unit Linked Insurance Plans, investors are allowed to check the performance of their funds, hence it ensures transparency. In fact, ULIP charges are managed by IRDAI which means that all insurance companies are required to disclose the charges of these funds.
- Wealth Creation: By investing in Unit Linked Insurance Plans, investors can easily pave their way towards wealth creation. Offering great returns, these plans are ideal for high-risk-bearing investors who want their money to grow exponentially.
- Child ULIP Plans: There are different types of Unit Linked Insurance Plan such as child ULIP plans that helps in creating a secure future for your child. This plan comes with features of “premium of waiver” which means that the child will still continue getting the benefits even if their guardian meets an unfortunate demise.
- Disciplined Way of Savings: ULIP comes with a lock-in period of 5 years which means that investors need to regularly invest in order for their wealth to grow.
- Lower Surrender Charges: ULIP has a lower surrender charge as compared to many other investment plans. With a lower surrender charge, it becomes an ideal as well as affordable option.
Who Should Buy ULIP Plans?
Following are the group of people who should buy ULIP plans:
Medium/High Investment Goals
Individuals who have medium to high-risk investment horizons should buy ULIP plans. A ULIP plan is not suggested for those who want steady returns in less time.
Across all life stages, individuals must consider buying a ULIP plan. Whether you are a young professional or are nearing retirement, you should consider buying ULIP plan to maximise your savings.
A plan like ULIP is suitable for those who have a high-risk appetite. This is because ULIP involves high market fluctuations and thus should not be bought by those who are financially unstable.
Different Types of ULIP Plans
Some of the types of ULIPs that you can consider buying are as follows. The below-listed types are on the basis of the purpose:
ULIP for Retirement
This type of plan is best for those who are willing to create a corpus for their retirement. The returns from these plans are paid out in the form of annuities. So, any kind of retirement planning you have in your mind can be sufficed with this plan.
ULIPs for Savings
With ULIPs, you can create wealth for the long run. On investing in this type of plan, you can thus plan for your future and accumulate a great amount for the long run.
ULIP for Getting Health Benefits
In case of a medical emergency, you can use the wealth generated out of ULIPs to deal with such an event.
ULIP for Child’s Education
There is no denying that parenthood is one of the most blissful phases, however, it comes with a lot of responsibilities. But, with ULIP Plan for child, you can now secure the future of your child so that their dreams are never compromised. Moreover, it also comes with a waiver of premium feature that helps keep the plan active even if the guardian meets an unfortunate demise.
On the other hand, there are different types of ULIPs based on plan structure such as those listed below:
Regular vs Single Premium ULIP
In a regular plan, investors need to pay the premium on a regular basis. On the other hand, in a single premium ULIP, investors pay the entire premium in one go.
Guaranteed vs Non-guaranteed ULIP
Guaranteed plans focus more on preserving the savings of investors and thus offer lesser returns. While a non-guaranteed ULIP plan invests a large amount of money in the equity market and thus offers great returns in a short period of time.
ULIPs Based on Life Stages
Based on the different life stages, ULIPs can be classified into equity, debt, or a mix of both. Depending on what time you invest, you can choose a desired type. However, over the years, you need to choose a type that offers stable returns or you can even choose a mix of both equity and debts.
Funds Available with ULIP Plans
There are different types of fund options available based on risk-appetite, investment goals, and more. So, listed below are the different types of funds available with ULIP are as follows:
- Equity - The capital of the investor is used to buy equity shares in one or more companies. It's a great option for those who are willing to take on a lot of risk.
- Debt - Here funds are invested in debt instruments like corporate bonds, Government bonds & securities, debentures, and fixed-income bonds. While the risk ranges between medium to low, the returns associated are also only moderate.
- Large-cap Funds: In this type, money is invested in stocks of well-established companies that are mostly top 100.
- Mid-cap Funds: Unlike large-cap funds, in mid-cap funds, the money is invested in medium-sized companies. However, the risks involved here are higher because the company will not be established as one in large-cap funds.
- Liquid Funds - This ULIP is ideal for achieving short-term financial objectives. The funds of the investor are kept in highly liquid money market instruments in this account.Also, the maturity period ranges between a few weeks to months.
- Balanced Funds - Here the money is invested in both equity and debt instruments. The returns are more stable in this type.
- Cash Funds - Ideal for investors who do not have a high-risk appetite, cash funds are the ULIP type that offers low returns.
How to Manage ULIP Funds?
Listed below are some of the easy ways in which you can manage ULIP funds:
- Self-switching: In case you wish to manage the funds yourself, then you can easily go for the self-switching option. When you opt for this, then you have all rights to change your premium allocation based on your investment goals, risk tolerance, and others. There are a number of insurance companies that provide the option of free switches.
- Automatic Switching: If you do not want to take the responsibility to manage your funds, then you can go for automatic switching. In such a situation, personal fund managers will be assigned who will take care of your funds' performance at regular intervals.
- Investment Top-ups: In case you want to increase your investment, you can easily top it up. So, whenever you feel like you have accumulated additional savings, then go for investment top-ups. However, you should only choose this when you know your ULIP fund is performing well and you wish to maximize your returns even further.
If you are planning to invest in ULIP, you need to be aware of the different charges associated with it. Some of them are listed below:
- Premium Allocation Charge: It refers to the fees that the insurance company charges to allocate the amount to different types of funds.
- Mortality charge: It is the amount that the insurance company charges for providing life insurance coverage under ULIP.
- Fund Management Charge: This is the amount that the fund manager charges to regulate your funds.
- Switching Charge: It is the fee charged when you switch from one fund to another.
- Policy Administration Charge: This is the charge taken by the insurance company to provide you with policy-related services.
- Partial Withdrawal Charge: This is the fee charged if you are making partial withdrawals from the invested money.
- Surrender Charges: In case you discontinue your ULIP plan before the lock-in period or the 5th year, then a certain amount of fee is charged which is called surrender charges.
How to Buy ULIP Plans with InsuranceDekho?
Here’s how you can buy ULIP with InsuranceDekho:
- Enter Details: Provide your name, mobile number, gender, and date of birth. Click on the ‘View Instant Quotes’ button to check available quotes.
- Insurance Quotes Comparison: You will find different ULIP insurance quotes based on the details provided. Compare the available plans and select the one that suits your requirements.
- Make The Payment: After choosing your ULIP, adjust the sum assured and the policy term. Make the payment for the premium once everything is finalized via net banking or debit/credit card.
- Submit Necessary Documents: Submit desired documents like photo ID proof, address proof, age proof, and a passport-size photograph along with required medical records.
Difference Between ULIPs and Mutual Funds
Listed below are the differences between ULIPs and mutual funds:
Return on Investment
As ULIP has a lower-risk involved, then mutual funds will offer a lesser return on investment
Mutual funds offer a greater return on investment
The lock-in period of ULIP ranges from 3-5 years
In comparison to ULIPs, mutual funds have a lesser lock-in period
The fund management charges with ULIP plans are capped at 1.35%
Mutual funds are cost-effective option as compared to ULIPs
ULIPs don’t offer a lot of investment options
Mutual funds offer a chance to invest in different asset classes like bonds, equities, and more
ULIPs offer tax benefits as specified under section 80C of the Income Tax Act
Except for ELSS, all other mutual funds include taxes
How to Use ULIP Calculator?
ULIP calculator is a helpful tool that helps you determine the amount you will receive as an investment as well as the premium you will have to pay for the same. Some of the factors that are considered for using the ULIP calculator are
- Investment amount
- Policy tenure
- Rate of return
On entering these details, you will be able to select the right ULIP plan for yourself.
Understanding About ULIP NAV
In ULIP, NAV refers to the Net Asset Value. NAV in ULIP works on a simple formula of dividing the total worth of an asset by the number of units that have been issued. Moreover, it is important to note that the value of these assets are basically determined by the market value of the fund.
Demystifying Myths About ULIP
There are a number of myths about ULIP that stop investors from buying it. So, let’s demystify the myths around ULIPs:
- High-risk Plans: ULIPs involve high risk and should be bought by only those who have a high-risk appetite is a common myth among investors. It should be however understood that as ULIPs are a combination of both insurance and investment, hence it’s a safe option. Furthermore, you should also be aware that the returns also depend on the type of fund you have selected.
- ULIPs Are Costly: A number of individuals who are investing for the first time think that ULIPs are a costly option. However, this is not the case as you can select a plan based on your budget and can start your investment journey with a very small amount of money as well. Moreover, the different charges that you pay towards ULIPs are also very minimal.
- They are Not Flexible: ULIPs are highly flexible plans as they allow investors to switch between different funds as well as let them choose the payment frequency, fund withdrawal frequency, and others.
Terms Related to ULIPs
Listed below are the common terminology you should know about before buying ULIPs:
- Fund Value: It is basically the total amount of investment you are willing to make towards the ULIP plan. This can be calculated by multiplying the number of units owned by NAV.
- Sum Assured: It is the amount that is assured to the nominees in case the investor meets an unfortunate demise.
- Fund Switch: It refers to the process in which you are making switches from one fund to another. There are a few insurance companies that offer free fund switches for a certain number of times.
- ULIP Charges: When you buy a ULIP, you need to pay certain fees such as mortality fees, surrender fees, and others, which are called ULIP charges.
- Net Asset Value: It is basically the value of each unit of your investment, overall it is the net asset value of your funds.
Investment Insurance Companies
- Kotak Life Investment
- Future Generali Investment
- SBI Life Investment
- PNB MetLife Investment
- HDFC Life Investment
- ICICI Prudential Investment
- LIC Investment
- Max Life Investment
- Tata AIA Investment
- Bajaj Allianz Investment
- Aegon Life Investment
- Aditya Birla Sun Life Investment
- Bharti AXA Investment
- Edelweiss Tokio Investment
- Pramerica Life Investment
- Canara HSBC Investment
- Reliance Nippon Investment
- Shriram Life Investment
- India First Life Investment
- Sahara Life Investment
- Aviva Life Investment
- Ageas Federal Life Investment
- Star Union Dai-Ichi Investment
Disclaimer: InsuranceDekho does not endorse, rate or recommend any particular insurance company or insurance plan.
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FAQ About ULIP Plans
What is the fund value in ULIP?
Fund value is the total monetary worth of the units that a policyholder owns.
What is the sum assured in ULIP?
Sum assured in ULIP is the minimum guaranteed amount that a nominee receives in the event of policyholder's death.
What is the lock-in period of ULIP?
The lock-in period of ULIP is 5 years.
Can I withdraw my ULIP funds anytime like in the case of mutual funds?
No! You can withdraw funds only after 5 years.
Can I get my ULIP premium refund if I am unsatisfied?
Yes! You can request a refund after 15 days of free-look period.