- Date : 14/06/2020
- Read: 7 mins
A handy guide explaining everything related to ULIPs.
If you have wanted to buy an insurance policy anytime over the last few years, you would have come across a new product called ULIP or Unit-linked Insurance Plan. You would have heard your insurance agent tell you how it combines the benefits of insurance with investing and takes advantage of the booming Indian market. This article will tell you everything you need to know about ULIP.
What is ULIP?
A ULIP plan is a financial product that combines a life insurance plan with an investment option. Like any life insurance plan, it provides cover against the risk to your life. Additionally, it invests a part of the premium in various funds. You can choose the type of fund you would like to invest in, and the allocation for each type. The funds can belong to the following categories:
- Equity funds
- Fixed interest debt funds
- Balanced funds
- Money market funds.
A part of the premium is paid towards ULIP, which acts as coverage against any risk to your life. The insurer pools the rest and invests them in funds chosen by them. The total corpus is then divided into units, and each investor is allotted units based on the amount they have invested. Each unit has a Net Asset Value which varies based on the market value of the underlying funds. The value of your ULIP is equal to the product of the number of units allotted to you and the NAV.
This may make ULIP sound very similar to a mutual fund, but these products offer different advantages. Before investing the monies into the underlying funds, the insurer also deducts various applicable fees and charges. These include:
- Premium allocation charges - the initial and renewal charge
- Mortality charges - the insurance fee
- Fund management fee
- Surrender charges, when applicable
Related: ULIP vs Mutual Fund Where to Invest? [Step by Step]
Features and benefits of ULIP
An investment in ULIP offers three main benefits:
- Death benefit: The sum assured paid in case of the death of the insured.
- Maturity benefit: The value of the fund paid at maturity of the policy.
- Tax benefit: Exception under section 80C of the Income Tax Act.
That said, the best ULIP plans offer much more than that. Listed below are some of the key features that make ULIP plans attractive:
1. Flexibility
When investing in a ULIP plan, you get to customise each aspect of the product to meet your specific requirements. For example:
- You can choose the extent of life cover based on your future liabilities and financial capabilities.
- Choose the total premium to be paid based on the surplus amount that you would like to invest at any given time. You can use a top-up facility if you would like to increase the investment being made through the plan.
- Opt for insurance riders to extend the insurance coverage to meet your specific requirements. This attracts a marginally higher premium.
- Choose the fund type you would like to invest in, based on your risk appetite. The funds vary between aggressive equity funds to more conservative money market funds and fixed interest debt funds.
2. Transparency
With ULIP, you are always aware of the value of the units allotted to you. You also have a clear view of where your funds are invested and can change the allotment as and when you please. A free-look period after the purchase of a ULIP plan allows you to be sure that it offers what was promised.
Related: How Ulip can help in meeting long-term goals
3. Liquidity
After an initial lock-in period, ULIP allows the customer to make full or partial withdrawals by selling the units allotted to them. This lock-in period has been set as IRDAI as 5 years.
4. Multiple benefits from a single scheme
ULIP offers not just insurance cover but also an avenue to grow your investment over the years.
5. Risk mitigation
The ability to pool monies from multiple investors allows the insurer to diversify the investments. This reduces the risk exposure and allows you to reap benefits from market growth without worrying about picking the right stock.
Related: 8 Charges you must know before investing in ULIPs
Why buying a ULIP is a good idea?
Investing in ULIP can offer you multiple advantages, including:
- A healthy return on your investments.
- Long-term capital appreciation and ability to compound returns over the years.
- Tax benefits under Section 80C of the Income Tax Act.
- Cover against the risk to your life, with the ability to top-up in case of additional liabilities arising unexpectedly.
- Participate in India’s growth story at a low risk.
Related: How and why to monitor your ULIPs after purchase
Comparing top ULIP Plans available in India
Here is a quick comparison of the best ULIP plans available in India:
1. HDFC Life Click2Invest
| Parameters | Information |
|---|---|
| Min. Entry Age | 30 days. |
| Max. Entry Age | 65 years |
| Minimum Premium | Single: INR 24,000. Annual: INR 12000. Half-Yearly: INR 6,000. Quarterly: INR 3,000 |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | Nil |
| No.of Funds | 8 |
| No. of free switches in a year | 4 |
2. SBI Life eWealth
| Parameters | Information |
|---|---|
| Min. Entry Age | 18 Years |
| Max. Entry Age | 50 years |
| Minimum Premium | Annual: INR 10,000. Monthly: 1,000. |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | INR 45/month |
| No.of Funds | 3 |
| No. of free switches in a year | Nil |
3. Aegon iMaximize
| Parameters | Information |
|---|---|
| Min. Entry Age | 7 Years or 18 Years |
| Max. Entry Age | 55 Years or 50 Years |
| Minimum Premium | INR 50,000 |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | INR 100/month |
| No.of Funds | 3 |
| No. of free switches in a year | 4 |
This data is relevant as of 30th September 2019.
If you have wanted to buy an insurance policy anytime over the last few years, you would have come across a new product called ULIP or Unit-linked Insurance Plan. You would have heard your insurance agent tell you how it combines the benefits of insurance with investing and takes advantage of the booming Indian market. This article will tell you everything you need to know about ULIP.
What is ULIP?
A ULIP plan is a financial product that combines a life insurance plan with an investment option. Like any life insurance plan, it provides cover against the risk to your life. Additionally, it invests a part of the premium in various funds. You can choose the type of fund you would like to invest in, and the allocation for each type. The funds can belong to the following categories:
- Equity funds
- Fixed interest debt funds
- Balanced funds
- Money market funds.
A part of the premium is paid towards ULIP, which acts as coverage against any risk to your life. The insurer pools the rest and invests them in funds chosen by them. The total corpus is then divided into units, and each investor is allotted units based on the amount they have invested. Each unit has a Net Asset Value which varies based on the market value of the underlying funds. The value of your ULIP is equal to the product of the number of units allotted to you and the NAV.
This may make ULIP sound very similar to a mutual fund, but these products offer different advantages. Before investing the monies into the underlying funds, the insurer also deducts various applicable fees and charges. These include:
- Premium allocation charges - the initial and renewal charge
- Mortality charges - the insurance fee
- Fund management fee
- Surrender charges, when applicable
Related: ULIP vs Mutual Fund Where to Invest? [Step by Step]
Features and benefits of ULIP
An investment in ULIP offers three main benefits:
- Death benefit: The sum assured paid in case of the death of the insured.
- Maturity benefit: The value of the fund paid at maturity of the policy.
- Tax benefit: Exception under section 80C of the Income Tax Act.
That said, the best ULIP plans offer much more than that. Listed below are some of the key features that make ULIP plans attractive:
1. Flexibility
When investing in a ULIP plan, you get to customise each aspect of the product to meet your specific requirements. For example:
- You can choose the extent of life cover based on your future liabilities and financial capabilities.
- Choose the total premium to be paid based on the surplus amount that you would like to invest at any given time. You can use a top-up facility if you would like to increase the investment being made through the plan.
- Opt for insurance riders to extend the insurance coverage to meet your specific requirements. This attracts a marginally higher premium.
- Choose the fund type you would like to invest in, based on your risk appetite. The funds vary between aggressive equity funds to more conservative money market funds and fixed interest debt funds.
2. Transparency
With ULIP, you are always aware of the value of the units allotted to you. You also have a clear view of where your funds are invested and can change the allotment as and when you please. A free-look period after the purchase of a ULIP plan allows you to be sure that it offers what was promised.
Related: How Ulip can help in meeting long-term goals
3. Liquidity
After an initial lock-in period, ULIP allows the customer to make full or partial withdrawals by selling the units allotted to them. This lock-in period has been set as IRDAI as 5 years.
4. Multiple benefits from a single scheme
ULIP offers not just insurance cover but also an avenue to grow your investment over the years.
5. Risk mitigation
The ability to pool monies from multiple investors allows the insurer to diversify the investments. This reduces the risk exposure and allows you to reap benefits from market growth without worrying about picking the right stock.
Related: 8 Charges you must know before investing in ULIPs
Why buying a ULIP is a good idea?
Investing in ULIP can offer you multiple advantages, including:
- A healthy return on your investments.
- Long-term capital appreciation and ability to compound returns over the years.
- Tax benefits under Section 80C of the Income Tax Act.
- Cover against the risk to your life, with the ability to top-up in case of additional liabilities arising unexpectedly.
- Participate in India’s growth story at a low risk.
Related: How and why to monitor your ULIPs after purchase
Comparing top ULIP Plans available in India
Here is a quick comparison of the best ULIP plans available in India:
1. HDFC Life Click2Invest
| Parameters | Information |
|---|---|
| Min. Entry Age | 30 days. |
| Max. Entry Age | 65 years |
| Minimum Premium | Single: INR 24,000. Annual: INR 12000. Half-Yearly: INR 6,000. Quarterly: INR 3,000 |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | Nil |
| No.of Funds | 8 |
| No. of free switches in a year | 4 |
2. SBI Life eWealth
| Parameters | Information |
|---|---|
| Min. Entry Age | 18 Years |
| Max. Entry Age | 50 years |
| Minimum Premium | Annual: INR 10,000. Monthly: 1,000. |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | INR 45/month |
| No.of Funds | 3 |
| No. of free switches in a year | Nil |
3. Aegon iMaximize
| Parameters | Information |
|---|---|
| Min. Entry Age | 7 Years or 18 Years |
| Max. Entry Age | 55 Years or 50 Years |
| Minimum Premium | INR 50,000 |
| Premium Allocation Charge | Nil |
| Policy Admin Charge | INR 100/month |
| No.of Funds | 3 |
| No. of free switches in a year | 4 |
This data is relevant as of 30th September 2019.
