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ULIP Plans

Unit Linked Insurance Plans (ULIPs) are a unique combination of life insurance and investment opportunities. When you opt for a ULIP, your premium serves the dual purpose of providing life insurance coverage while also letting you invest your money. One notable feature of ULIPs is their flexibility. Policyholders can choose to pay premiums either on a monthly or annual basis, aligning with their financial preferences.

Key Features of ULIP Plans

The key features of ULIP plans are tabulated below:

Parameters

Features of ULIP

Investment Strategy

ULIPs invest your money in various funds like equity, debt, or hybrid, based on your risk preference and life goals

Lock-in Period

ULIPs typically come with a lock-in period of 5 years, during which withdrawals are restricted. After this period, you can withdraw your funds

Fund Switching

You can switch between different funds within your ULIP portfolio for free, usually limited to a certain number of switches per year

Tax Benefits

ULIPs offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961

Charges

ULIPs may have charges such as administration fees, mortality charges, and fund management fees

Investment Options

ULIPs offer investment options in debt, hybrid, and equity funds, allowing you to customise your portfolio based on your risk appetite

Risk

ULIPs involve market risk as your funds are invested in the financial markets

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It is a form of investment which gives you returns as per the market performance along with life coverage.

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What is ULIP?

ULIPs, short for Unit Linked Insurance Plans, offer a fusion of life insurance and investment. When you opt for ULIP plans, you commit to paying a premium depending upon the premium paying frequency as per your preference.

These premiums are later divided into two parts: one portion goes towards securing life insurance coverage, while the other is allocated for investments. However, before these investments start, various charges such as fund allocation fees, policy administration fees, fund management fees, and mortality charges are deducted from the premium amount.

Once these deductions are made, the remaining funds are invested strategically across different asset classes based on the risk tolerance and preference of the policyholder.

In Unit Linked Insurance Plans (ULIP), the money you invest is affected by how the stock markets perform. This means that there is a chance you might not get back all the money you have invested. So, it is important to understand the associated risk before deciding where to invest your money.

Tips to Buy ULIP Plans

ULIPs are popular for long-term investment growth, but finding the right one can be a bit daunting for you. So, to help you out, we have compiled a list of things to consider that will make the choice easier:

  • Assess Investment Objectives: Before investing in a ULIP, it is important to evaluate your investment objectives thoroughly. Make sure you consider your current financial situation and future aspirations to opt for a plan that best suits your needs.
  • Evaluate Risk Tolerance: ULIPs inherently involve considerable risk factors. Therefore, it is crucial to assess your risk tolerance before making a ULIP purchase. You should only purchase a plan if you are prepared to withstand market risks effectively.
  • 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.
  • 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 you should 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 for you to have a proper investment strategy before investing in this plan as each of these plans caters to specific investment goals.
  • 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.
  • 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.
  • 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 help you choose the right plan.



Key Features of ULIP Plans

Listed below are the different key features of a ULIP plan that one should know about:

  • Flexibility: ULIPs provide the flexibility to switch between various funds, which in turn enables you to align your investments with your financial objectives. Additionally, ULIPs also allow partial withdrawals from your accumulated wealth whenever needed.
  • Dual Benefits: ULIPs offer the combined advantages of investment and life insurance coverage within a single plan. This feature of ULIP plans allows you to build wealth and protect your loved ones' financial future simultaneously.
  • Premium Redirection: With ULIPs, you can redirect your future premiums toward different fund options. For this, you simply need to provide your policy number and indicate the desired fund for redirection.
  • Transparency and Performance Tracking: Last but not least, ULIPs ensure transparency by providing detailed information on fund performance and facilitating NAV tracking.

How Does ULIP Work?

When you invest in a ULIP, a part of your paid premium goes towards life insurance, while the remaining amount is invested in multiple funds like equity, debt, or a combination of both, based on your choice. for your information, these funds are managed by professional fund managers.

Let us help you understand this with an example:

If you invest Rs. 1000 in a ULIP plan, a portion of this amount, say Rs. 300, will be allocated towards offering life insurance coverage, which will provide financial protection to your family in case of your unfortunate death. And, the remaining Rs. 700 will be invested in funds as per the investment strategy of your choice.

If the funds perform well over time, your investment will grow to Rs. 1500 after a certain period. The growth in the investment value reflects the performance of the underlying funds.

However, it's important to note that ULIPs also come with charges like premium allocation charges, policy administration charges, fund management charges, etc., which are deducted from your premium before the investment is made. These charges vary across different ULIPs and might impact the overall returns.

Benefits of Buying ULIP

There are multiple benefits of buying a ULIP plan, a few of which are listed below:

  • Insurance Coverage: ULIPs provide life insurance coverage that offers financial protection for the policyholder's family in case of events like death or disability.
  • Investment Opportunity: ULIPs allow policyholders to invest in a variety of funds such as equity, debt, or balanced funds, depending on their risk appetite and financial goals.
  • Flexibility: ULIPs offer flexibility in terms of investment and premium payment. Policyholders can choose the premium amount, frequency of premium payments, and switch between different funds based on market conditions or their changing investment objectives.
  • Tax Benefits: ULIPs offer tax benefits under the Income Tax Act, 1961. The premiums paid towards ULIPs are eligible for tax deduction under Section 80C, and the maturity proceeds or death benefits are tax-exempt under Section 10(10D).
  • Fund Switching: ULIPs allow policyholders to switch between different funds offered by the insurer This flexibility allows investors to optimise their investment portfolio over time.

Who Should Buy ULIP Plans?

Following are the groups of people who should buy ULIP plans:

  • Medium/High Investment Goals: Individuals who have medium to high-risk investment goals must buy ULIP plans. Remember, a ULIP plan is not suggested for those who want steady returns in less time.
  • Potential Investors: 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 a ULIP plan to maximise your savings.
  • High-risk Investor: 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

The different types of ULIPs are as follows:

  • ULIP for Retirement: This type of ULIP is great if you want to save up money for when you retire. The money you get from these plans is paid out as annuities, which can help you plan for your retirement better.
  • ULIPs for Savings: ULIPs are a good way to build up wealth over a long time. By putting your money into this kind of plan, you can prepare for your future and gather a decent amount of money over the years.
  • ULIP for Health Benefits: If you face a medical emergency, the money that you have saved up in ULIPs can help you cover the medical or healthcare costs.
  • ULIP for Child’s Education: With a ULIP plan designed for children, you can secure your child's future. Moreover, it also comes with a waiver of premium features that helps keep the plan active even if the guardian meets an unfortunate demise.

Types of ULIPs Based on Plan Structure

Following are the different types of ULIPs based on plan structure:

  • 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 in the market based on risk appetite, investment goals, and more. So, listed below are the different types of funds available with ULIP:

  • Equity Funds: These funds allocate investor capital towards purchasing equity shares in one or more companies. They are suitable for people willing to undertake higher levels of risk for potentially higher returns.
  • Debt Funds: Funds in this category are invested in debt instruments such as corporate bonds, government bonds, debentures, and fixed-income securities. While the risk associated with debt funds falls in the medium to low range, the returns are moderate.
  • Large-cap Funds: This type of fund invests in stocks of well-established companies, usually within the top 100.
  • Mid-cap Funds: Unlike large-cap funds, mid-cap funds allocate capital towards medium-sized companies. These companies may pose higher risks when compared to large-cap firms.
  • Liquid Funds: Liquid funds invest in highly liquid money market instruments and are ideal for short-term financial goals. The maturity period for these funds typically ranges from a few weeks to a few months.
  • Balanced Funds: These funds strike a perfect balance between equity and debt instruments and offer relatively stable returns when compared to pure equity funds.
  • Cash Funds: Designed for investors with lower risk tolerance, these offer lower returns but provide a higher level of security.

ULIP Charges

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. These charges cover initial expenses like underwriting, agent commissions, etc.
  • Mortality Charge: It is the amount that the insurance company charges for providing life insurance coverage under ULIP.These charges vary based on factors like age, gender, and health condition of the policyholder.
  • Fund Management Charge: This is the amount that the fund manager charges to regulate or manage 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.
  • Premium Redirection Charges: Premium redirection charges are incurred when policyholders redirect their future premiums toward a different fund option within the ULIP.
  • Rider Charges: Rider charges are fees imposed for additional benefits or features added to the original ULIP plan.

How to Buy ULIP Plans with InsuranceDekho?

Buying ULIP plans with InsuranceDekho is easy and quick. Simply follow these steps:

Step 1: Visit the official website of InsuranceDekho, hover on the “Insurance” tab at the top and then select Investment > ULIP Plan.

Step 2: On the next page, fill the form on the ride side with your name, number and DOB and click on “View Plans for Free”.

Step 3: Next, select the “ULIP” option in the top menu and apply other filters as per your requirement.

Step 4: You will find different ULIP insurance quotes based on the details provided. Compare the available plans and select the one that suits your requirements.

Step 5: After choosing your ULIP plan, adjust the sum assured and the policy term. Later, make the premium payment via net banking or debit/credit card.

Step 6: Lastly, submit the required documents like photo ID proof, address proof, age proof, and a passport-size photograph along with required medical records.

After successful submission of documents and approval, the chosen ULIP plan will be issued to you.

Difference Between ULIPs and Mutual Funds

Listed below are the key differences between ULIPs and Mutual Funds:

Basis

ULIPs (Unit Linked Insurance Plans)

Mutual Funds

Purpose

Offers both insurance coverage and investment component

Solely focuses on investment

Structure

Insurance product with an investment component

Pure investment product

Regulation

Governed by both insurance and investment regulations

Regulated solely by securities market regulations

Charges

Involves charges such as premium allocation charges, fund management charges, mortality charges, etc.

Generally, charges include expense ratio, entry load (if any), and exit load

Returns

Returns may vary depending on fund performance and insurance benefits

Returns are based on fund performance

Suitability

Suited for individuals seeking both insurance coverage and investment growth

Suited for individuals primarily focused on investment growth without insurance needs

How to Use a ULIP Calculator?

Knowing how to use a ULIP calculator is essential for making smart financial choices. A ULIP calculator is a helpful online tool that can guide you through ULIP policies. It moreover helps you figure out how much to invest and for how long, while also predicting what you might get back as a return on your investment money.

Now, if you want to know how to use a ULIP calculator, then follow these general steps:

Step 1: Start by visiting a reliable website with a ULIP calculator.

Step 2: Once you're on the ULIP calculator page, enter the required details like your age and how much money you want to invest in the ULIP policy.

Step 3: Now, decide if you want to pay all at once or regularly, like once a year, every six months, every three months, or every month.

Step 4: Next, you need to decide how many years you want to invest for. Remember, the minimum lock-in period in the case of ULIP plans is 5 years.

Step 5: After you've entered everything, the ULIP calculator will show you what you might get as a return from your chosen ULIP policy.

Understanding About ULIP NAV

NAV, or Net Asset Value, represents the total value of all the assets held within the ULIP fund after subtracting any liabilities and expenses associated with managing the fund.

To calculate NAV, the total value of assets, which may include stocks, bonds, or other securities held within the ULIP fund, is determined. From this total value, any outstanding liabilities or expenses incurred in managing the fund, such as administrative costs or taxes, are subtracted. The resulting figure is then divided by the total number of units outstanding in the ULIP fund.

NAV= ( Market Value of Fund’s Assets − Liabilities ) / Total Number of Units Outstanding

Demystifying Myths About ULIP

The several misconceptions about ULIPs are mentioned below along with the real facts behind each one of them:

Myth 1: ULIPs are High-Risk Plans

Fact: Contrary to popular belief, ULIPs are not exclusively for high-risk takers. These plans combine insurance and investment, making them a secure option. Additionally, the returns you receive depend on the type of fund you choose.

Myth 2: ULIPs Are Expensive

Fact: Many first-time investors feel that ULIPs are costly. However, this is not true. ULIPs offer plans customised to various budgets, which allows you to start investing even with a minimal amount. Moreover, the charges associated with ULIPs are generally minimal.

Myth 3: ULIPs Lack Flexibility

Fact: ULIPs are highly flexible investment options. Investors can switch between different funds based on their preferences. Additionally, ULIPs offer flexibility in choosing payment frequency, fund withdrawal frequency, and other parameters.

Myth 4: ULIPs Offer Guaranteed Returns

Fact: One prevalent misconception is that ULIPs guarantee returns. However, ULIPs are subject to market risks, and the returns are based on the performance of the invested funds.

Terms Related to ULIPs

Mentioned below are key terms that you should familiarise yourself with before investing in ULIPs:

  • Investment Value: This represents the total amount of money you commit to invest in a ULIP plan. This value can be calculated by multiplying the units owned by the Net Asset Value (NAV).
  • Assured Sum: This is the guaranteed amount that an insurance company pays to the nominee in case of the policyholder's death.
  • Fund Transfer: This denotes the process of reallocating investments from one fund to another within the ULIP structure. Some insurance providers may offer a limited number of complimentary fund transfers.
  • ULIP Fees: While purchasing a ULIP, you are required to pay various charges such as mortality fees, surrender fees, and others, which are collectively known as ULIP fees.


Net Asset Value (NAV): NAV represents the value of each unit of your investment, basically the overall value of your fund holdings.

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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. 

  • Why should I buy a single premium ULIP?

    You can buy a single premium ULIP if you don’t want to pay the premium regularly and a policy lapse. 

  • What are the ULIP options available under LIC?

    Some of the key ULIP options available under LIC are Nivesh Plus, SIIP, and New Endowment Plus.

  • Which section covers ULIP for tax deduction?

    ULIP is covered for tax deduction under Section 80C of the Income Tax Act, 1961.

  • Why should I buy ULIP?

    You should buy ULIP if you want life insurance cover, income tax benefits, finance long-term goals, and switch your investment portfolio. 

  • Are ULIPs the same as mutual funds?

    No! ULIPs and mutual funds differ based on features like nature, withdrawal, switching and charges. 

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