ULIP (Unit-linked Insurance Plan). ULIP policies provide benefits of insurance and investment. A small percentage of the money invested goes towards securing your life and the rest of the money is invested in the market for investment purpose. Policyholders can choose to pay premiums Monthly/Quarterly/Semi-Annually/Annually.
Unit linked insurance plans offer the opportunity to earn market-linked returns as premiums are invested in the market linked funds which invest in different market instruments including debt instruments and equity funds in different proportions.
The investments made in Unit Linked Insurance Plans (ULIP), are subjected to risks associated with the capital markets. ULIP policies provide you with the option to invest your money according to your risk-taking appetite. There are different fund options available with you to choose from like Equity Fund, Balanced Fund, Debt Fund etc. Exposure to equity varies in each fund with Equity Fund having the maximum exposure. Different companies have different nomenclature given to each fund.
As this investment risk is borne by the policyholder, thus, it becomes important for you to do sufficient research and check percentage allocation in equity and debt instruments to make your investment choice. It is advisable to consider your capability and situation for taking a risk. Another important factor to consider is your future need for funds like retirement planning, education and marriage of children or for purely investment purposes.
In a Unit Linked Insurance Plan (ULIP), the premiums you pay are invested in the funds chosen by you after deducting Allocation Charge, Policy Administration Charge and Mortality Charge from the funds by cancelling units. These charges are deducted on the monthiversary basis applicable NAV on that day in the market.
Unit linked insurance policy offer the twin benefit of life insurance along with savings at market-linked returns. Thus, you get the opportunity to invest your money and earn higher returns, while taking care of your protection needs. The investment in ULIP also helps to build a regular habit of saving and investing, which is important for creating wealth and savings over a long period.
Ulip plans give you the option to switch between investment funds to match your evolving needs. There is a facility to partially withdraw from your fund, subject to charges and conditions. You can also pay Top-ups i.e. Single premium additions to invest additional sums of money (over and above the regular premium) as and when desired, subject to conditions
Benefits of ULIP
Let’s take a look at some of the ways a ULIP plan benefits you:
Disciplined Savings: When you put money away in a ULIP every month, you’re inculcating a habit of disciplined savings. It is well said that putting savings aside every month is one of the main elements of every successful long-term financial plan. When you timely pay regular premiums, you can enjoy creating wealth for yourself and simultaneously securing the financial future of your loved ones.
Life Risk Cover: One of the most significant benefits of ULIP is that it offers life cover along with investment options in a single plan. So, apart from creating wealth for yourself, these plans ensure that your family will be taken care of financially if anything untoward were to happen to you.
Flexibility: With a ULIP, you are completely in control of your investment. ULIP gives you the option to switch your funds around at any point depending upon the market conditions. This means that you can move your money ie. Fund Value (either partial or full) from equity funds to balanced and debt funds or vice-versa. Additionally, you can choose to redirect future premiums to a different fund of your choice and keeping already allocated money in the previous fund. If you’d like to invest more money later, you can top up your ULIP. Most importantly, after completion of the lockin period, you will have the opportunity to partially withdraw some of the funds from the investment for financial emergencies.
Growth Potential: One of the reasons that ULIP continues to be a favourable investment option is its growth potential. These plans allow you to invest in market instruments like equity, balanced and debt funds to grow your money. The returns received could help you achieve your long-term financial goals. The longer you stay invested in your ULIP, the more time you give to your investment to grow. Once you invest, you should commit to it for the long-term preferably throughout the term of the policy.
Income Tax Benefits: ULIP is purchased with the two goals in mind: First, to invest your money so that it helps grow your wealth. Second, to get life cover that protects the financial interests of your family. Other than these two, you can also enjoy some ULIP tax benefits as well. As per the Income Tax Act, 1961, the premiums you pay are eligible for ULIP tax exemption up to INR 1,50,000 per year. To enjoy this ULIP tax benefit, you must make sure that your sum assured is at least 10 times the annual premium you pay. If this requirement is not met, the maturity benefit will not be exempted from income tax and your premium tax benefits will be covered at 10% of your total sum assured.