ULIP

Unit Linked Insurance is the best option for those investors who are looking for long-term investments.  There are many benefits that are offered by these investment plans. These investment plans offer investment opportunities in equities and bonds. One has the choice to pay the premiums on a regular basis. These investment plans can help individuals attain their financial goals in the long run.

What is a Unit Linked Insurance Plan?

ULIP stands for the Unit Linked Insurance Plan. It comes with a facility to invest in and life coverage. ULIP insurance plans offer the facility to pay the premiums yearly or monthly basis. A fraction of the deposited premium amount is invested and another part is used to provide life insurance.

However, one must know that these investment insurance plans come with a risk related to the financial market.  you opt for the risk investment and manage it under your investment portfolio. Before buying a ULIP plan it is advisable to consider your risk appetite and financial goals. 

While buying a ULIP plan, you should also consider why you are investing in ULIP or how much returns you expect by investing in this insurance plan. One plus point of Unit-linked plans is that they are quite transparent when it comes to investment. the investor will be informed of all the allocation charges, management charges beforehand.

With the help of a Unit Linked insurance plan, you can also switch between your investment from equity to debt or vice-versa.  You can switch funds through your ULIP plan without any trouble.

The first time ULIP plans were introduced in India was by the Unit Trust of India in 1971. Later life insurance corporations introduced ULIP plans in 1989 in India. At first, ULIP was not popular among investors due to its higher cost. However, at a later time and at present, major life insurance companies offer ULIP plans with improved ULIP plans. The charges are not high for these plans and they have many features that ensure financial profit to investors.

Top ULIP Plans available in India in 2022

Plan Names	Entry Age	Minimum Premium	Premium Allocation Charge	Policy Admin Charge	No. of Free Switches allowed in a Year
Aegon Life iMaximise Secure Plan	7 to 55 years	Rs. 24,000 to Rs. 36,000	–	Rs 100 per Month	4
Bajaj Allianz Future Gain	1 to 60 years	Rs. 25,000	0% to 1.5%	Rs. 33.33 per Month	Unlimited
Aviva Life Bond Advantage Plan	2 years to 65 years	Rs.50,000	–	Rs.40 per month	12
Birla Sun Life Wealth Assure ULIP Plan	30 days65 years	Rs.1,00,000 per annum	5% of basic premium during the first year	Rs.3000 per annum for the initial 5 years
Bajaj Goal Assure	0 years (30 days) to 60 years	Rs. 3,000 to Rs. 36,000	–	Rs. 400 p.a. inflating @5%.	Unlimited
Edelweiss Tokio Life Wealth Enhancement (Ace)	5 years65 years	Rs.75,000	3%, 2% & 1%	Rs.40 per month	unlimited
Canara HSBC Grow Smart Plan	7 years65 years	Rs.25,000 per annum 1	1-year policy term- 8.40%2-3 years policy term-6.40%4-10 years policy term5.40% 11th  years onward- Nil	Rs.416 per month	6
Exide Life Wealth Builder	18 year65 years	Rs.50,000	Rs 50,000- 99,999: 1% Rs 1,00,000- 2,49,999: 0.5% Rs 2,50,000 & above- Nil	0.104% per month (Maximum Rs 500 per Month)	Unlimited

 

Key Features of ULIP plans

We have mentioned some of the important features of ULIP plans- 

Flexibility

ULIP plans offer a lot of flexibility to the investors. You also have the choice to switch between your funds to meet your financial needs. You also get the choice to withdraw money from your funds in case of financial emergencies.

Funds for future needs

There are different financial needs in one’s life that people must overcome. These spendings include buying a house, marriage, and business ventures. You can withdraw money from your ULIP plan in times of need. It is why you should consider all the factors before buying a ULIP plan.

Protect your child’s future 

With the help of ULIP, you get higher returns as these funds are connected to different market investment tools. Buying a ULIP plan can help you secure your child’s future. You can use these funds for your child’s education, business, or marriage. 

Post Retirement security

ULIP plans are ideal for those people who are looking for long-term investment as the equities perform better over a long period. These plans are also ideal for people who are looking for a retirement fund. The young policyholders have the choice to invest in equity funds to get better returns.

Benefits of ULIP plans

There are many benefits of buying a ULIP plan, some of these benefits are mentioned below-

Savings, Investment, and Life Protection 

With the help of ULIP plans, you can build a savings habit and invest extra earnings. You can also build financial security over time. ULIP offers two benefits at the same time; life coverage and investment option. You can get higher returns if you choose an ideal ULIP plan for yourself.

Market-linked Returns

ULIP plans offer the investors to earn higher profits. A fraction of your premium is invested into investment plans so you can earn higher benefits. 

Insurance Benefits/ Investment

Unit Linked Insurance Plan offers three benefits at the same time. it offers life cover, investment, and tax benefits to the investor. One can invest in their choice of funds to get higher returns.

Death Benefits

When you buy a unit-linked plan, it offers a death benefit to the family of the Policyholder in case of sudden demise. However, the fund amount offered depends on the plan type.

Maturity Benefits

A ULIP plan offers different benefits to the Policyholder, one of them is maturity benefit after the successful completion of the maturity period.  The maturity benefits are paid according to the value of your sum assured or plan type but some companies also offer their clients add-on benefits.

Benefits of Long-term investment 

Long-term investment benefits are offered if you choose a ULIP plan for your investment. However, as these funds are connected to the financial market, the returns are ambiguous. The returns on a ULIP plan depend on the performance of the financial market. In case you want to buy a ULIP plan, you should always go for long-term plans instead of short-term investments.

Withdrawal Benefits

If you want to opt for an investment plan that allows you to make cash withdrawals in times of need, a ULIP plan is ideal for you. These plans allow the investors to withdraw cash during a financial emergency. However, you must complete a prescribed timeline to become eligible for this service.ULIP plans will help you save taxes. The withdrawals made are not taxable.

How can you choose the best ULIP Plan?

When you want to buy the best ULIP plan for yourself, you need to consider a few things mentioned below-

Analyze your Personal Investment Goals

If you are thinking of investing in a ULIP plan, then it is important for you to know your financial goals in the long run. You should check if your investment plan is in sync with your investment plans or investment goals. 

Make clear your Insurance Objectives

If you want to invest in a ULIP plan, you should be aware of your insurance objectives. If you are still young then you should consider all the factors including the present and the future. It should also cover your financial emergency moments or any unfortunate event.

 You should also consider when you plan to marry or if you have a family, how you can provide them a secure future. You should know that ULIP plans are best for long-term investors. Therefore, it is necessary for you to opt for the unit-linked plan only if it matches your requirements.

Make your investment Goals clear

When you plan to invest, you should give your investment goals priority. It is important to know what you want to achieve from your investment.  If you have a clear financial goal then you can choose the best ULIP plan for yourself.  

There can be different Investment goals for different investors. For example, some investors want to buy a house and others want to build a fund for their education. Some people also invest for big financial spendings like marriage or retirement funds.  You should know what you need according to your age and invest accordingly. Once you make your mind, you can gain the benefits from your ULIP plan.

Compare ULIPs

While buying Unit Linked plans, you should research and analyze the best ULIP plan for yourself. Different ULIP plans offer different benefits to the investor.  Nowadays you can compare different ULIPs plans at once.  You also have the choice to compare these plans offline. You can take the help of a ULIP calculator to calculate your profits and returns on the investment made.

Performance of Plan 

Tracking the past performance of a ULIP plan is an ideal thing to do. You should check the past performance of the funds and plan you want to invest in. You can get a general idea of how many returns you will earn. 

Solvency Ratio

Before buying a ULIP plan, you should also check if the company has a positive solvency ratio. You should check for a solvency ratio of 1.5 or above.

Claim Settlement Ratio

It is important to purchase those ULIP plans that offer a higher claim settlement ratio to the investors. The better the claim settlement ratio, the better the ULIP plan provider it is.

Investment Strategies 

There are different methods to invest in a ULIP plan. You can make an investment plan related to your ULIP to get higher returns. These plans can focus on specific goals like retirement plans, wealth building, or providing your child with financial backup.

Types of ULIP plans

One can buy a ULIP Plan according to one’s needs. Some of the ULIP plans are mentioned below- 

ULIP Plan for Retired personnel

In this type of ULIP plan, one must deposit money during your work period with your employer. These deposits are collected automatically and paid in annuities to the policyholder post-retirement.

ULIPs for Wealth Building 

ULIP plans ideal plans if you want to build wealth over time. these plans are generally ideal for those investors who are young and have a risk appetite. You can build a significant amount over time with the help of ULIP plans.

ULIP for Child Education

If you want to provide a bright future for your child then you can opt for ULIP plans specifically made for that. You can ensure your child is getting a quality education with the help of these plans.

ULIPs offering Health Benefits

Some of the insurance providers also offer health benefits under their ULIP plan. You can meet any financial emergency with the help of these plans.

Fund types offered by ULIPs

ULIP plans offer different types of funds to the Policyholders to invest in-

Cash Funds

Cash funds are also called Money Market funds. Cash funds do not expose the investors much to financial risk. You can invest in bank deposits, invest in cash and financial market that are low-risk investment tools

Debt Funds

Fixed interest, income, and Bond funds; come under low-risk investment tools and allow the policyholder to invest in a corporate bond, government securities, and low-risk assets. These funds allow the investors a slightly higher profit in comparison to cash funds.

Hybrid/ Balanced Funds

These types of funds are a combination of fixed interest funds and equity funds.  These funds balance the market risk and offer the investor an opportunity to invest in the stock market alongside the debt funds. The risk factor is balanced with the help of debt fund investment.

Equity Funds

Equity funds under the ULIP plan come under high-risk investment tools. These types of ULIP plans offer investors the opportunity to earn higher profits through stock market investment. however, you must know that the returns are not fixed under this investment choice.

Why should you invest in ULIP Plans?

There are numerous reasons for a person to invest in ULIP plans. We have mentioned some common reasons for you –

Higher Returns

ULIP plans are definitely the best option for the younger generation and people with a high-risk appetite. The return rate in these plans is around 12-15%. The ULIP plans allow you to choose between different funds and switch between them accordingly.

Avoid managing stocks

When you invest in ULIP plans, you do not have to worry about your investment. Your investment is monitored by the fund managers of your insurance company. ULIP plans also provide your investment professional assistance.

Different Fund Options

One has many options if one decides to invest in ULIP plans.  You can decide the type of fund you want to invest in. You can decide the fund type according to your financial needs. The fund options come in high-risk to low-risk investment funds. If you have a high-risk appetite then you can invest in equity-based funds. The low-risk investment choices are also provided to the investor under these plans.

Transparency

One plus point of investing in a ULIP plan is, they have a transparent investment procedure. Unlike traditional investments, every information is shared with the plan holder. Charges under these plans are also explained to the investors. One can also track the account balance in a ULIP plan.

Liquidity

ULIP offers a type of liquid investment to the people. These plans also provide the opportunity to make a partial withdrawal during any unfortunate event or financial emergency.

Low Surrender Charges

You can also surrender your ULIP plans on low charges. If you find that your ULIP plan is unable to meet your requirements, you can give up on that policy by paying nominal surrender charges, unlike the traditional plans.

How does ULIP plan Work?

The ULIPs plan offers you investment and life coverage at the same time. It also offers a death benefit to the policyholder in case he dies during the active period of ULIP. In addition, if the policyholder survives during the policy period of ULIP plans, he/she receives the maturity benefits. You have the freedom to choose the most suitable plan for yourself. In case the value of your investment falls under your ULIP plan, the nominee or beneficiary is eligible to receive the specified amount. 

Factors to consider before investing in ULIP plans

There are many ULIP plans to choose from. One must choose the best variant for oneself to gain the ideal benefits. Here are a few things you need to consider before going for a ULIP plan-

• Before buying a ULIP plan, you must research all the available ULIP plans. It will help you get the best ULIP plan for yourself.
• You should calculate all the applicable charges when you buy and exit the plan.
• You should not follow others blindly when it comes to investing in ULIP plans. You must be clear about your financial needs and risk appetite to go for the most beneficial ULIP plan for yourself.
• Before investing in a ULIP plan, you should track the past performance of the fund.
• You should read and compare all ULIP plans available in the market to make the right choice.

How can you manage ULIP funds?

People investing in ULIPs should consider long-term financial goals and higher returns. The maximum lock-in period of these investment plans is about 5 years. So, you need to invest at least 5 years to gain higher profits. 

You also get the benefit to transfer your funds in case you want to switch your funds from equity and Debt funds or vice versa. You can also pay premiums according to your choice. If you choose to pay your premiums on an annual basis then you have an option to invest in a debt fund then switch it to an equity fund. It is like the STP or Systematic Transfer Plans. You can choose this method to reduce all the risks related to your investment assets.  

Also, ULPs also automatically divide your investment into debt funds and equity funds.  This investment method can also be useful for those who are retiring or want to build a retirement fund.

When you invest in these ULIP plans, you should monitor their performance periodically. You can switch the funds that did not perform well to the ones that are performing well.  You can switch your ULIP fund from equities to debt funds. Switching this way, you will not be asked to pay tax charges. Some institutions apply charges while switching and others do not.

Unit Linked Insurance Plan – FAQs

Q1. Is investing in ULIP a good option for me?

Ans. ULIP offers the investors the opportunity of life coverage and insurance policy. Besides, ULIP also offers people to grow their wealth and market-linked profit. ULIP also helps you manage regular savings and investment plans. You have the option to invest to pay your premiums on monthly or annual payments.

Q2. What is the perfect timing to invest in a ULIP plan?

Ans. A person can invest in a ULIP plan after planning his/her investment. There is no specified time to invest in a ULIP plan. 

Q3. If I earn higher returns through my ULIP plans, are they taxable?

Ans. After the completion of the maturity period, the returns are not taxable under the IT act 1961 section 10(10D). In case the policyholder dies during the active policy term, the amount is tax-free.

Q4. How can one get higher returns with ULIP plans?

Ans. You can follow these steps to maximize your profits under ULIP plans-

• Start your investment early
• You should invest your investments in a disciplined manner
• Go through the best investment methods and funds 
• Keep your portfolio modified and switch between funds when needed. 
• You also have the choice to add top-ups to make your investment stronger.

Q5. For how long can a person invest in a ULIP plan?

Ans. The lock-in period for ULIP plans is about 5 years. If a person has the resources and the right investment plan, then he/she can invest in a ULIP plan for 10 to 20 years.