A market-linked insurance product called a unit-linked insurance plan, or ULIP policy combines the finest aspects of insurance and investing into one. A ULIP insurance plan allows flexibility to invest in both stock and debt portfolios based on your risk tolerance and is tied to market results.
A new generation prefers ULIPs because of the exciting aspect of market-linked returns combined with insurance.
After deducting costs for fund management, policy administration, and the mortality charges for providing life insurance, the premiums you pay are invested in a fund of your choosing.
By dividing the entire value of the investments in the fund by the total number of units, one may calculate the worth of each unit of the fund. In an illustration, Manish purchases a 20-year, Rs. 100,000 annual premium ULIP plan that provides him with a Rs. 10 lakh life insurance benefit (Life cover should be minimum 10 times of the annual premium as per IRDA guidelines). The amount of money left over after fees say Rs 4,000, for investing in the selected fund is Rs 96,000 (Rs 100,000 – Rs 4000). If the fund’s NAV was Rs 13.00 on the day, Manish made his investment. He would receive 7,384.615 units (Rs 96,000/Rs 13.00 NAV).
Now, if the NAV reaches Rs. 14.00 after a year, his total fund worth would rise to Rs. 103,384.61. (7,384.615 units x Rs 14.00). The value of the entire fund would also decline if the fund’s NAV decreased. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.
Salient features of ULIPs
While purchasing ULIP coverage, insurance companies offer a selection of funds. You can pick a fund that fits your risk tolerance. Equity, debt, and balanced funds are just a few of the available options. Debt funds adopt a conservative investment approach, while balanced funds strike a middle ground by holding both equities and debt. Equity funds, on the other hand, focus largely on investing in the equity markets.
- Life coverage: This is a significant ULIP advantage. On the annual premium paid in accordance with IRDAI criteria, you are guaranteed a minimum of 10 times life insurance. In the event of passing away, the nominee receives the greater of the promised payment or fund value. Visit the official website of IRDAI for further details. The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.
- No additional fees: The upfront and outlined fees associated with ULIP insurance are positive. Depending on the type of fee and the terms of the policy, it is deducted annually or monthly and includes the allocation of premiums, administration, fund management, and mortality charges, among other things.
- Switching facility: Certain funds have the special ability to move between fund possibilities, which makes them highly appealing because you may choose which fund to be in depending on the state of the market. By using this method, you may keep your asset allocation intact.
- Partial withdrawals: Partial withdrawals are the ULIP insurance’s distinguishing feature. To fulfil your financial needs, you can withdraw a portion of the fund without jeopardising the ongoing success of the plan. When the initial five years of the plan have been completed, withdrawals are often permitted.
- Low premium paying term: This is a crucial ULIP perk. You have the option of selecting a premium payment period that is shorter than the insurance term. As an illustration, for a ULIP plan with a 20-year term, you can select a 5-year premium-paying term.
- Tax benefits: Section 80C of the Income Tax Act of 1961 allows for a tax deduction on ULIP premium payments up to Rs 150,000 made in a fiscal year. The gains and maturity proceeds from ULIPs are tax-free under Section 10(10d) of the Income Tax Act because they are insurance plans. Tax law changes may have an impact on ULIP tax benefits.
* Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
- Buy online: Online ULIP purchases typically have reduced premium allocation fees because no compensation is given to any agents or brokers.
We can therefore draw the conclusion that ULIP is a wise choice because of the distinctive combination of insurance and greater investment results. ULIPs provide the dual benefit of insurance coverage and investment opportunities, allowing individuals to invest in a wide range of funds as per their risk appetite and financial goals. With the potential for high returns and ULIP tax benefits, ULIPs are definitely worth considering as a long-term investment option.
