Life Insurance 688 views January 2, 2020

ULIP Plans

Unit Linked Insurance Plans (ULIP) is a hybrid insurance plan which provides life insurance cover and opportunities for investment along with tax benefits under section 80C of the Income Tax Act. ULIP Plan offers the insured individual coverage of risk together with options for investment in some qualified investments plans such as mutual funds, stocks and bonds. ULIP is a one-integrated plan consisting of the investment part and the protection part which can be managed according to insured’s needs and choice.

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The investments in ULIP are subjected to the risks which are associated with the capital market. The insured individual in ULIP bears the risk on the investment portfolio. Hence, you should make an investment choice on the basis of risk you are willing to take. The policyholder or the insured should also consider the future needs of the fund invested by him/her. A unit-linked insurance plan is much more transparent as the charges are clearly stated upfront in the plan. The charges include allocation charges, fund management charges, etc.

Features of Unit Linked Insurance (ULIP) Plans

Unit Linked Insurance plans come with various features which help the investors to make sure about the security against all any future adversities, enjoy benefits on tax and maximise the financial corpus. A unit-linked insurance plan is one of the best investment choices that you can make. Some of the key features of ULIPs are stated as follows:

  1. Unit Linked Insurance (ULIP) Plan provides flexibility to the insured. The insured has the benefit of switching between different funds in order to match their changing needs. The insured can also partially withdraw from the fund subject to certain special charges and specified conditions. ULIP enables the insured to invest additional money over regular premiums.
  2. ULIP provides the facility to partially withdraw money which provided access to funds at the most essential stage to meet the needs of the insured. A significant amount of funds are needed at different life stages such as for business needs, for building a house, home loan repayment, child’s marriage, etc.
  3. The unit-linked insurance (ULIP) plan helps to invest in market risk linked funds in order to earn better market returns. ULIP also help to create a corpus which can be used for child education or to secure the future of the child. The funds received from ULIP can be used towards a child’s marriage also. The parents can keep a track on the NAV to ensure the returns offered can meet the future requirements.
  4. Unit linked insurance (ULIP) plan are a better choice to add value to your investment than another investment plan as equities tend to do well over the long term. If you want to have sufficient post-retirement funds then you invest in equity-oriented funds at a younger age. With age, you can gradually shift your investments to more conservative debt funds as ULIP allows you to switch your funds easily.
  5. If you are wondering about ULIP plans vs mutual funds, the main difference is that ULIPs provide insurance coverage which mutual funds don’t
  6. You can also buy online ULIP plans which can be bought instantly by applying online

Types of ULIP Plans

Classification by Death Benefit

  1. Type-I ULIP – In Type I ULIP plan, the nominee of the policyholder/insured receives the higher of either the total sum assured or the fund value on the specified date as a death benefit. In case the insured dies in the initial years of the insurance policy when the fund value is much lower than the total sum assured, the insurer will pay the agreed sum assured to the insured’s nominee. However, if the fund value is more than the sum assured, then the accumulated fund value will be the death benefit which will be paid to the nominee of the policyholder.
  2. Type-II ULIP Plan – Type II ULIP plan is a beneficial plan in which the nominee of the insured gets the sum of both the Sum Assured as well as the Fund Value if the policyholder faces an untimely demise. However, the risk involved in this type of ULIP is higher and also require additional premium payments from the policyholder.

Classification by Investment Purpose

  1. Child Education Plans – Child’s Education ULIP plans are designed for generating adequate and necessary funds support education and the future of insured’ child.
  2. Pension/Retirement Plans – Pension/Retirement ULIP plans enable you to secure your future by making small and steady investments during the days of your earning. The amount accumulated and collected as corpus can be used by you to purchase an annuity after your retirement.
  3. Investment Plans –ULIP investment plans provide you with the benefit of accumulating wealth and also maximising it over a certain period of time. ULIP Investment plans are a better choice for millennial investors to keep themselves prepared for future financial goals.

Types of ULIP funds

The premium that you pay is invested in the different funds available under the plan. You can choose any fund as per your risk appetite. The most common types of funds available under ULIPs are as follows-

  1. Debt Funds – Debt ULIP funds invest in various debt funds such as government securities, corporate bonds, etc. Debt-based ULIP funds carry low risks and offer lower ULIP returns than equity funds. Debt fund ULIP plans are good for investors who are not willing to take a high risk on their investment.
  2. Equity Funds – Equity-based ULIP funds invest in equities and stocks of the companies. These funds offer a higher reward as compared to any other type of ULIP plan. However, Equity ULIP funds carry higher risks and are ideal for investors who are willing to take higher risk.
  3. Balanced Funds – Balanced funds are another type of ULIP fund which is a stable investment option that invests in both equity as well as debt funds. The premium paid by the insured on the policy is invested in fixed components such as corporate bonds and also in varied components such as in the stock market. Hence, balanced ULIP funds have medium-risk and keep a balance of both equity and debt funds.

Best ULIP Plan Ever in India

Here is a list of some of the most popular and attractive unit-linked plans which are available in India

Best ULIP plan of LIC – LIC’s New Endowment Plus
ULIP plan ICICI – ICICI Pru Signature
HDFC ULIP Plan - HDFC Click 2 Wealth
ULIP by AEGON - Aegon Life iMaximise Secure Plan
Bajaj Allianz ULIP - Bajaj Allianz Future Plan
ULIP by PNB MetLife - PNB Metlife Smart Platinum

Benefits of Unit- Linked Insurance Plan

1. Flexibility

Unit- Linked Insurance plan is a flexible investment plan that can easily adapt to the changing financial needs of the insured. It gives the flexibility to switch between different ULIP funds and enable you to match your changing risk-bearing capacity. ULIP also offers to make partial withdrawals if you need the funds urgently and also facilitates you to make lump-sum additions to your premium amounts for increasing your investments at any time, through the facility of top-up in the insurance policy.

2. Market Linked Returns

ULIP plan enables you to reap the benefit of market investments with lower risks than investing directly. As a policyholder, you are provided with a choice to choose from 6-7 types of investment funds with each having its unique feature. You can make a choice according to your risk-bearing capacity and investments goals.

3. Freedom to choose your Investment Mix

In ULIP plans, you can choose from a wide variety of fund options according to your needs and risk appetite. If you want higher returns and willing to take higher risk, you can invest in equity-based plans. Whereas if you do not wish to take high risk and are satisfied with medium or low returns, you can invest in debt funds or balanced funds.

4. Tax Benefits

Unit- Linked Insurance Plans are one of the most tax-effective saving investments option available in the market. The premiums which are paid towards ULIPs are exempt from income tax up to Rs 1.5 Lakh under the prescribed section 80C of the Income Tax Act. The returns on ULIP are also tax-free under section 10(10D) of the Income Tax Act.

5. Investment with Life Protection

ULIP provides with dual benefit of life insurance as well as market-linked investments from a single policy scheme. Besides securing the future of your family and loved ones, you can also gain higher returns on ULIP plans and maximise your wealth.

6. Plan for the Crucial Milestones in Life

Because of the benefit of hybrid nature of ULIPs, you can utilise the funds received from ULIP to meet the expenses at the time of important events in life such as child’s education, marriage, etc. Therefore, ULIPs are a great investment option in order to plan your long term financial goals.

7. Financial Security Post Retirement

A secure retirement plan is important for peace of mind. Retirement ULIP plans help to secure the golden years of one’s life without impacting the current budget of the insured individual. By investing small premium, you can easily build up a huge substantial corpus for your retirement.

8. Transparent Structure

ULIP plans are transparent in term of levied charges as well as in terms of an investment portfolio. Thus, if you invest in ULIP plans you will be properly informed about the value and the number of fund units that you hold.

9. Protect The Future Of Your Loved Ones

The life insurance part of the ULIP plan secures your family’s in the event of your demise. Thus, ULIP plans ensure that the financial condition of your family does not get much affected even in your absence.

Conclusion

ULIP Plans have numerous benefits and features in favour of an investor or policyholder. The NAV of the ULIP is a smart tool for tracking the investments and ensure that the investors stay invested in the best ULIP plans. Investors should make use of the best ULIP plans in order to plan their future money requirements smartly. Before making an investment in Unit- Linked Insurance plans one must compare various types of plans and various plans provided by various insurance companies to make a wise decision and gain best returns from the investment. The investment should be made keeping in mind one’s needs and requirements.

There is a variety of ULIP plans to meet your diverse financial needs. Whether you want to save for your retirement or for your child’s education or if you want to invest your savings for earning higher returns, there are ULIP plans for every need of yours.

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