What is ULIP?

Table of Contents

1. How Does ULIP Work?

2. How Is the ULIP Plan Structured?

3. Benefits of Investing in ULIPs

4. Features of ULIP Plans

5 Who Should Buy A ULIP Plan?

6. Fund Options under ULIPs

7. What are ULIP Charges?

8. What is the Lock-in Period of a ULIP?

9. How to Maximise Returns from a ULIP?

10. How to Choose the Best ULIP Plans?

11. Understanding Unit Linked Insurance Plans (ULIPs) and Other Investment Options Available Under Section 80C

12. Understanding ULIP Tax Benefits in Detail

13. Conclusion

14. FAQs on What is ULIP Plan?

15. ULIPs from HDFC Life
 

ULIP or Unit Linked Insurance Plan is a financial product that blends life insurance coverage with market linked investment opportunities. The payment made towards your ULIP Plan is divided into two parts. A part of your premium is used for life insurance coverage while the rest of the premium is invested in different market linked assets such as equity, debt and hybrid funds based on you preference and risk profile. This structure provides both financial stability and the opportunity to build wealth to achieve long-term goals.

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How Does ULIP Work?

​​A ULIP offers investors the dual advantage of life insurance protection and market-linked investment through a single plan. A part of the premium is invested in equities, debt or a combination of both funds, depending on your preferences. The part of the premium that you invested in the funds buys you “units” of the funds that you have choosen. How many units you get depends on the fund’s daily price which is called the NAV or Net Asset Value. 

On maturity, the insurance company pays out the fund value, which is an aggregate of all the chosen funds and is equivalent to the NAV on the maturity date. However, in the case of an unexpected event, the beneficiaries receive the higher of these amounts:

• The Death Benefit (Sum Assured)

• The fund value accumulated during the time of demise

• 105% of the total premiums paid up to that date. 

This approach ensures that, regardless of market conditions, your family is financially protected.

Let’s understand how ULIPs work by taking an example and couple of scenarios. We have Praneeth who has taken a ULIP Plan at the age of 32 and is planning on staying invested for the next 28 years. The premium that Praneeth pays towards his ULIP Plan are allocated towards life cover of Rs. 1Cr and rest of the premium is invested Market-linked funds.

Following are the two possible scenarios based on Praneeths’s investment:

Scenario 1: Praneeth survives the full tenure of his ULIP Plan

Outcome: If Praneeth survives the entire 28 years of tenure that he had opted for, he will receive the fund value accumulated based on the performance of the funds he had choosen. This money will help Praneeth in fulfilling his financial goals.

Explanation: The fund value represents the total worth of all the units he has accumulated over his 28 years of investing ULIP Plans.

Scenario 2: Praneet’s Untimely Demise before the maturity of his ULIP Plan

1. Outcome: If Praneeth unfortunately passes away at the age of 42 – before the completion of his 28 years tenure of ULIP Plan, his beneficiaries will receive the higher of the following.The Death Benefit which is the sum assured of Rs. 1 Crore.

2. The fund value accumulated at the time of Praneet’s demise.

Explanation: ULIP Plans are devised in a way that they provide maximum financial support. This higher of clause ensures that Praneeth’s family receives the greater amount which provides a significant financial protection and security to Praneeth and his family during difficult times irrespective of whether Praneeth’s fund value has grown substantially or now.

How Is the ULIP Plan Structured? 

A ULIP Plan is designed with two core components – Life Insurance and Market-linked investments.

A portion of the premium is allocated to life insurance, creating a financial safety cushion for your family to deal with any eventuality. The remaining portion is invested in equities, bonds, or hybrid funds, depending on your fund selection. 

Similar to mutual funds, ULIP collects funds from various subscribers and invests them in market-linked assets as per the policyholder’s choice. The investor can invest in a single fund entirely or create a diverse portfolio. The risk attached to each fund type is different. 

Equity Funds: High risk investments with potential for higher returns depending on how the market performs.

Debt Funds: Low risk investments and offers stable returns.

Hybrid Funds: Moderate risk investments since it combines both equity and debt funds balancing between growth and stability.

All ULIPs are managed by fund managers, whose job is to ensure the investment remains aligned with the investor's financial goals and objectives. However, as a policyholder, you can switch funds to adapt to the changing market conditions, risk appetite, and financial goals. You can use an online ULIP calculator to calculate the premium and coverage to align with your needs and affordability.  Apart from the flexibility to switch funds and choose premium payment frequency, ULIP also allows customization as per your needs through riders. These add-ons such as critical illness riders#, accidental death benefits riders#, waiver of premium riders# etc. adds an extra layer of cushion for your and your family’s financial security.

Benefits of Investing in ULIPs

If you are wondering why invest in ULIP, take a look at some of the ways a ULIP plan benefits, which will justify the choice. 

Dual Advantage: Insurance & Investment Combine

ULIPs combine life insurance with investment options that helps you grow wealth while securing your family’s financial future.

Flexibility to Align with Your Goals

• Fund Switching: With a ULIP Plan You can choose to switch between fund options (Equity, Debt & Hybrid) based on changing market trends and your goals.

• Flexible Premium Payments: The multiple premium payment option, i.e., monthly, quarterly, half-yearly, and yearly allows you to choose a payment frequency that suits your cash flow offering ease of mind and flexibility. 

• Top-up Facility: The top-up facility allows you to invest surplus money into your existing policy, helping you grow your wealth faster while staying aligned with your evolving financial goals.

Potential for Wealth Creation through Market-Linked

ULIP Plans allow you to invest in market instruments like debt and equity funds, which offer a strong growth potential for wealth-building. Diversifying the portfolio across various funds balances the risks with rewards. Staying invested for longer terms leverages the power of compounding for maximized returns.

Tax Efficiency under Sections 80C* & 10(10D)*

Premiums paid under ULIP Plans are eligible for deductions of up to 1.50 lakhs under section 80C of the Income Tax Act 1961. The death benefits and maturity benefits however are tax free under Section 10(10D), subject to conditions. Liquidity through Partial Withdrawals@

ULIP has a lock in period of 5 Years during which withdrawals of funds are not allowed. However, post this lock-in period, partial withdrawals are permitted which offers liquidity for short-term needs or emergencies. Long-Term Goal Achievements.

If long-term goals, such as retirement planning, a child’s education, and buying a home, are a part of your financial planning, there is no better investment plan than ULIP to achieve them. Consistent investment and compounding helps you in building a significant corpus amount that you can use to fulfil your long term goal.

Encourages Disciplined Savings

Regular & timely payment of premiums foster disciplined savings which is the most crucial aspect of a long-term financial strategy. 

Transparency in Investments & Charges

ULIPs offer transparency regarding fund performances and charges. This enables investors to track the progress of the funds and the associated charges. A detailed declaration about the fund allocation, returns, and fees charged enables informed decisions. This clarity fosters trust and enables investors to manage their investments efficiently and optimize returns.

Loyalty Additions & Other Bonuses

Commitment for a longer period in ULIP gives the opportunity to earn bonuses through loyalty additions or wealth boosters. For example HDFC Life Smart Protect Plan offers refund of mortality, premium allocation, fund management, and guarantee charges as loyalty additions##. HDFC Life Sampoorn Nivesh Plus provides loyalty additions^ after the 10th policy year onwards, adding 1.8% of the average fund value.

Tax Benefits

The investments in ULIP are eligible for tax benefits similar to other life insurance products. The premiums you pay towards the plan are eligible for deduction up to ₹ 1.50 lakhs under Section 80C* of the IT Act 1961. The maturity benefits are tax-exempt under Section 10(10D)* provided the premium paid does not exceed 10% of the sum assured for policies purchased after April 2012, and ₹ 2.5 lakhs for policies issued after February 1, 2021, and ₹ 5 lakhs for policies issued after April 1, 2023.  However, the death benefits are generally tax-free, irrespective of the premium amount. Additionally, if you choose to move your money from one fund to another, you will not have to pay any additional tax.

Features of ULIP Plans​​

The ULIP features that make it a preferred investment option are:

Fund Switching Facility

ULIP plans offer multiple fund options and allow switching a part of the investment or the entire investment between funds within the same plan. However, there is a limitation on the number of free switches, generally 10, after which you incur fund-switching charges. This feature allows you to adjust your investment portfolio according to fund performance and changing risk tolerance levels.

Partial Withdrawal Option

ULIP has a lock-in period of 5 years from the policy issue date. During this period, you can neither withdraw funds partially nor surrender the policy without incurring penalties. However, after completing 5 years, Partial Withdrawals@ are allowed, keeping the rest of the investment intact to generate returns. You cannot withdraw the entire amount before maturity or surrender the policy before maturity. If the policyholder is a minor, partial withdrawals are allowed only after he/she turns 18.

Top-up Premium Facility

The top-up premium facility under ULIP allows investing additional amounts in the existing plan. This helps the investor take advantage of market opportunities to enhance wealth accumulation. Since the facility is flexible, additions can be made whenever there are surplus funds. 

Option to Add Riders

You can customise the existing ULIP plan options as per your requirements by adding riders such as critical illness riders, accidental death benefit riders, etc. These add-on options in ULIPs enhance the policy coverage. For instance, if the policyholder is diagnosed with a critical illness, the insurance company pays a defined lump sum fixed at the time of policy purchase, which can be used for ongoing living expenses and treatment costs. This reduces the financial strain on the family.

Choice of Multiple Fund Options

You can create an investment portfolio based on your financial goals and risk appetite with the multiple fund options available under ULIP. The options generally are equity, debt funds, or balanced funds. With the options available, you can customise your investment strategy for wealth creation. For more insights, refer to the Fund Options under the ULIPs section. 

Varying Policy Terms & Premium Payment Modes

ULIP offers a flexible duration and premium payment frequencies. You can choose the policy tenure to align with your financial goals. Various premium payment frequencies are available, such as monthly, quarterly, half-yearly, and yearly, and you can choose the one that suits your cash flow.

Who Should Buy A ULIP Plan?

ULIP plans are market-linked investment opportunities that anyone above the age of 18 can avail. ULIPs are most suitable for:

Those Seeking Long-Term Investment Opportunities

ULIPs yield the best results when you stay invested for the long term, typically 10-15 years. This gives the investments to leverage the power of compounding to build a significant corpus to fulfill long term goals such as retirement, child education, house purchase, wealth accumulation ct.. 

Individuals Seeking Combined Insurance and Investment

Individuals who prefer life cover and investment elements in a single plan can buy a ULIP plan. A portion of the premium is allocated to provide life cover, and the rest is invested in market-linked assets to create a considerable corpus over time. 

Investors with Varying Risk Appetites

Through ULIPs you can invest in different types of funds such as equity, debt and hybrid funds to match your risk profile.

Aggressive Investors: Aggressive investors prefer equity funds for higher returns despite higher risks.

Moderate Investors: Moderate investors prefer hybrid funds that balances between risk and returns that can provide stability and growth.

Conservative Investors: Conservative investors prefer debt funds since they have low risk and can help with the capital protection while providing stable returns.

Those Looking for Tax-Saving Investments

The premiums paid towards the plan are eligible for deduction up to ₹1.50 lakhs under Section 80C*. The death and maturity benefits are tax-exempt under Section 10(10)*, subject to certain conditions. 

Individuals at Different Life Stages

Individuals at different life stages normally have different risk appetites. ULIPs combine the security and investment elements in a single plan, making them suitable for:

Young Professionals: Young professionals can benefit from market-linked growth by staying invested for longer terms.

New Parents: New parents can start investing in ULIP to help in saving for your child’s education and marriage and to secure the child’s future.

Those Planning Retirement: Those planning for retirement can opt for low-risk instruments for stable returns for financial independence in their life stage.

Fund Options under ULIPs

You can opt for any of the following types of funds while investing in a ULIP.

Equity Funds

Equity funds in ULIP majorly invest in company stocks and offer significant capital appreciation over the long term. They are perfect for investors with a higher risk appetite, as equity funds are more volatile but yield substantial returns. If you have a long investment horizon, you can benefit from the compounding effect of wealth creation.

Debt Funds

Debt Funds in ULIP are suitable for conservative investors with a low-risk appetite. They prefer capital preservation over returns. Debt funds invest in fixed-income instruments that include treasury bills, corporate bonds, etc. These instruments provide stable/moderate returns. 

Hybrid Funds

These hybrid funds ULIP perfectly balance equity and debt instruments. They work intending to moderate the risk with growth. These funds suit investors who need a balance between capital appreciation and stability. Balanced funds provide a diversified investment approach within a single fund, making them suitable for investors with a medium risk tolerance.

What are ULIP Charges?

Investing in ULIP have associated charges for the various services rendered. The various ULIP charges explained below will give an insight into how the charges impact your overall returns. 

Administration Charges

A fee is charged for the administration of your policy every month. Administration charges are deducted by cancelling units proportionately from each of the funds you have chosen. The charges can be fixed or variable. They can be charged as a percentage of the premium, can be maintained at a flat rate throughout the term, or can change at a predetermined rate 

Fund Management Charges

These charges are towards meeting expenses related to managing the fund. This is charged as a percentage of the fund's value and is deducted before arriving at the net asset value of the fund. The maximum cap set by authorities is at 1.35% p.a.

Fund Switching Charges

In a policy year, a fixed number of such switches are available free of cost. Subsequent to this, each switch would attract certain fund switching charges ULIP. These charges are deducted by cancelling units proportionately from each of the funds you have chosen.

Surrender or Discontinuance Charges

ULIP fees levied for premature encashment of units, i.e., before the end of the lock-in period, are the surrender or discontinuance charges. They are charged as a percentage of the fund value and depend on the policy year in which the policy has been surrendered.

Mortality Charges

Mortality charges ULIP are collected to provide life cover and depend on the age, health condition, and the sum assured. These charges are collected monthly. HDFC Smart Life Protect Plan returns the mortality charges as a loyalty addition benefit. 

Premium Allocation Charge

A premium allocation charge is a one-time fixed charge collected as a percentage of the premium paid. It is deducted upfront to cover various expenses like commission, underwriting, and policy issuance. 

Partial Withdrawal Charges

After 5 years of lock-in period, you can do partial withdrawals of funds. While some plans offer unlimited free partial withdrawals, others restrict to 2 to 4. Withdrawals beyond the free limit attract charges.

What is the Lock-in Period of a ULIP?

The lock-in period of a ULIP, or Unit Linked Insurance Plan, is five years. Policyholders cannot surrender or withdraw their funds during this period without incurring charges. This time frame encourages a long-term investment approach that helps wealth creation and also meets the insurance objectives of a ULIP. However, partial withdrawals are permitted after the completion of the lock-in period, provided all the premiums are paid regularly for the first 5 year If the policy is issued to a minor, part withdrawal is permitted only after the insured attains 18 year.

How to Maximise Returns from a ULIP?

If you want to maximise your returns from your ULIP investment, here are some tips for ULIP investment that can help.

Start Early and Stay Invested Long-Term

Starting to invest early helps you benefit from both market fluctuations and compounding over the long term. This helps you overcome market volatility and build a significant corpus to provide a robust financial future.

Utilize Fund Switching Strategically

Switching funds helps balance risks with rewards. Switch funds between equity to debt funds or balanced funds, depending on the market trends, changing risk profile, financial goals, and life stages. You can switch from debt funds to equity funds when the market is bullish and revert to debt funds when there is a downturn. Similarly, when the maturity date is approaching, you can minimise the risk by diverting the investment to debt funds.

Consistent Investment

ULIPs prove to be one of the best investment options when you stay invested in them consistently and regularly. Financial discipline in premium payments is important to enhance growth and retain life cover. You can create a large invested corpus over time that will provide better returns. Setting automatic ULIP premium payments ensures you remain actively invested. 

Review Your Portfolio Periodically

Keeping in touch with your portfolio and regularly monitoring your funds' performance helps you take timely action. With this approach, you will be able to encash market opportunities and increase or decrease your investments between funds for maximised returns. However, readjusting the portfolio frequently based on temporary market changes can hurt your investment. 

Consider Top-up Premiums

ULIPs allow top-up premiums throughout the policy period. With this benefit, whenever you have surplus funds, consider making additional investments in the existing plan and boosting the investment corpus. 

How to Choose the Best ULIP Plans?

You can consider the following while choosing best ULIP plan in India for your finances.

Define Your Financial Goals

Prudent financial planning lies in aligning your investments with your financial goals and risk appetite. Make a list of your short-term and long-term goals, such as children’s school fees, funding higher education, buying a home, emergency funds, and retirement planning, among others, before investing in ULIP. This helps in the best ULIP plan selection and putting your money in the right baskets. 

Assess your Risk Appetite

Before you invest in a ULIP, you must assess your risk tolerance. Your investment preferences must be based on your risk appetite before you shortlist the ULIP plans. This is because ULIPs offer various fund options, each with different risk profiles. Your fund selections should align with your goals and risk apetite.

Compare Plans:

Before investing in ULIP, compare different ULIP plans in terms of features, benefits, flexibility in switching funds, fund performance, etc. Align the investment to match your projected needs and risk appetite. An informed decision enhances the returns and serves the investment purpose. 

Understand and Compare all the Charges

ULIP investment is associated with several charges that can considerably impact your returns. Understand all the charges, such as policy administration charges, premium allocation charges, fund management charges, surrender charges, mortality charges, and guarantee charges etc. The charges vary with the plan. Compare all the charges before deciding to minimize the burden on your investment.

Consider the Life Cover Amount Needed

The right coverage amount ensures that your family lives comfortably without compromising on the present lifestyle when you are not around. Before deciding the sum assured factor in your income, monthly expenses, EMIs, education expenses, inflation, etc., to obtain proportionate life cover. Do not forget to consider the inflation rate. 10 to 15 times your annual income is considered an ideal life cover. 

Read Policy Documents Carefully

Read the fine print in the policy document before investing in ULIP plans. Exclusions, fund charges, fund options, limitations, and lock-in period are all mentioned under the terms and conditions. Understanding these aspects is crucial to avoid surprises during the claim settlement. This ordeal ensures that the ULIP plan aligns with your goals and risk tolerance. 

Go through the Tax Benefits

You can enjoy certain tax benefits by investing in ULIP as per the Income Tax Act. According to Sections 80C, 80D and 80CCC, you can opt for tax benefits for paying life insurance premiums. You can also enjoy tax exemption on the maturity amount as per Section 10 (10D).

Choose a ULIP Plan Aligning with Your Investment Goals

It's important to select a fund that aligns with your risk tolerance and investment goals. For example, a hybrid fund can offer decent returns without exposing the investor to significant losses due to market fluctuations. For Non-Resident Indians, considering a ULIP for NIR can provide specific benefits suited to unique financial situations and goals.

Choose the Right Insurance Coverage

Beyond wealth growth through market-linked investments, a ULIP plan provides essential life insurance coverage. This coverage plays a crucial role in achieving long-term goals like funding children’s education or marriage while also ensuring financial support for your loved ones in the event of an untimely death. To ensure the plan aligns with your future needs, it’s important to assess the right level of coverage. 

Using a life insurance calculator can help you accurately determine the coverage amount needed based on your financial goals, dependents, and personal circumstances, ensuring that you choose a policy that offers the right protection.

Understanding Unit Linked Insurance Plans (ULIPs) and Other Investment Options Available Under Section 80C

Given below is a table that helps understand the ULIPs Versus the other investment options available under Section 80C.

ULIP, ELSS, PPF, and Mutual funds suit different investor needs. The above table provides an idea of which investment plans best suit investors, enabling them to make an informed decision.

The premiums paid towards ULIP, the investment under ELSS and PPF are eligible for tax deduction under Section 80C of the IT Act 1961.

Understanding ULIP Tax Benefits in Detail

For a detailed input about ULIP taxation rules, refer to the Sections below:

Tax Deduction on ULIP Premiums under Section 80C

Investors can claim tax deduction of upto Rs. 1.5 Lakhs for premium paid towards ULIPs under Secion 80C, subject to following conditions.

• For policies issued after April 1, 2012, the premium paid should be less than or equal to 10% of sum assured to qualify for deductions.

• For Policies issued before April 1, 2012, the premium should be 20% or less of the sum assured.

Let’s understand this with an example: Divya purchased a ULIP Plan on April 30, 2012, with a life cover of rs. 12 Lakhs. She can claim Section 80C tax benefits if her annual premier is less than Rs. 1.2 Lakhs. If she had purchased the plan on March 30, 212, she could have claimed the deduction if her premium was less than Rs. 2.4 Lakhs.

Tax Exemption on Maturity/Death Proceeds under Section 10(10D)

Maturity procees of ULIP plans are tax-exempt under Section10 (10D), subject to following conditions.

• The investors can claim an exemption under Section 10(10D) for ULIP purchased after April 1, 2012, only if the premium paid does not exceed 10% of the sum assured.

• For policies purchased after February 1, 2021, exemption applies if the total premium padi si within Rs. 2.5 Lakhs.

• For policies purchase after April 1, 2023, exemption applied if the total premium paid is within Rs. 5 lakhs.

• The returns for plans that do not comply with the above exemption rules are taxable under capital gains. Returns above ₹ 1.25 lakhs are taxed as ULIP LTCG (Long Term Capital Gains) at 12.5%. Death benefits are generally tax-free.

Tax Implications on Partial Withdrawals

Partial withdrawals after the lock-in period, i.e., 5 years, are tax-free. However, partial withdrawals before the lock-in period are considered income and taxed according to the investor’s income tax slab. 

Tax on Switching Between Funds

Switching of funds under ULIP is not treated as a withdrawal or redemption, as the switching is between the same funds. Hence, these switches are not taxable.

GST on ULIP Charges

All ULIP charges including premium allocation charges, policy administration charges, fund management charges, surrender charges, mortality charges, and guarantee charges etc. attract a GST of 18%.

Note: Tax laws are subject to change. Please consult a tax advisor for personalized advice.

Conclusion

ULIPs are integrated plans combining the life cover and the investment components, making them an ideal financial tool for long-term financial planning. With features such as flexibility, market-linked returns, transparency, and tax benefits, investors can achieve their financial goals by aligning the investment to their financial goals, time horizon, and risk profile. By reviewing and readjusting their profiles or consulting a professional advisor for an informed decision, investors can maximise returns with ULIP.

FAQs on What is ULIP Plan?

1. What is a ulip and how does it work?

Unit Linked Insurance Plans (ULIPs) are a category of goal-based financial solutions that offer dual benefits of protection and Investment. Your Unit linked Insurance Plan is linked to the capital market and offers you flexibility to invest your units in equity or debt funds depending upon your risk appetite. ULIPs are typically bought for long term capital gains and offer a protection cover too.

2. Is ULIP a good investment?

ULIPs can be considered suitable investments for those seeking insurance coverage and market-linked returns. With ULIPs, you get flexibility, choice of funds, and wealth creation. However, the suitability of this investment instrument depends upon your financial goals and risk tolerance.

3. What is Net Asset Value (NAV) in a ULIP, and how is it calculated?   

Net Asset Value is the per-unit price of a fund. The NAV can be calculated using the formula ​​NAV = (Total Assets - Total Liabilities) / Total Number of Outstanding Units.

4. Can I surrender my ULIP before 5 years? What are the implications if I do?  

Yes. You can surrender your ULIP before the completion of 5 years. However, you will not get the entire fund value. The surrender before the lock-in period attracts surrender or discontinuance charges, which will be deducted from the fund value. 

5. Are ULIP returns guaranteed? 

The ULIP returns are generally not guaranteed. However, the HDFC Life Smart Protect Plan offers a capital guarantee and provides a minimum assured benefit regardless of market fluctuations. 

6. What happens to my ULIP policy after maturity? 

After the ULIP policy matures, the life cover ceases, and the fund value is paid out to the policyholder. If the investor has chosen the settlement option, the fund value is reinvested, but the coverage stops. The accumulated corpus can be withdrawn systematically over the next 5 years under the option. The investor can also opt to buy an annuity plan with a fund value to generate a regular income stream. 

7. How many fund switches are allowed in a ULIP per year? Are they free?

ULIPs allow unlimited fund switches. However, only 10 to 12 switches are free, and the rest attract fund-switching charges. 

8. What is the difference between Type 1 and Type 2 ULIPs (regarding death benefit)?   

The death benefit payout is the key difference between type 1 and type 2 ULIP.  Type 1` ULIP provides the sum assured or the fund value, whichever is higher, as a death benefit, whereas the type 2 ULIP provides the sum assured plus fund value as a death benefit. 

9. Are ULIPs risky? 

Yes, ULIPs project market-linked risks as a portion of the premium is invested in market-linked assets. The risk level depends on the choice of funds. Equity funds are for high-risk profile investors, and debt funds are for conservative investors. Choosing the right funds minimises the risk. 

10. How can I check the performance of my ULIP?

You can check ULIP’s performance using the insurance company’s online portal or mobile app, where the fund value, NAV, and portfolio updates are available. Study the NAV vis-à-vis the market benchmarks. Review the annual policy statement for required details. To ensure that your investment aligns with your goals and risk profile, review and readjust your portfolio periodically

11. What are the new-age ULIPs or 4th-generation ULIPs? 

New-age ULIPs or 4th-generation ULIPs are a refined version of traditional ULIPs. The charges are lower, comparatively, including zero premium allocation or policy administration charges. The plan also offers the return of mortality charges benefit, along with flexible fund-switching options and online tools for goal-based investment planning. The returns are higher owing to lower costs. 

12. What is the right time to invest in ULIPs?

It's always a good time to invest in ULIPs. Ideally, the earlier you start, the better it is for you. This is because you will have more time to grow your money and reach your financial goals. You can also pick the funds you'd like to invest in based on your age, risk appetite and how much you'd like to earn in returns.

13. Is it necessary to pay tax on the ULIP maturity amount?

ULIP maturity proceeds are exempt from tax under Section 10(10D) of the Income Tax Act, 1961. This makes ULIPs tax-efficient investments. 

14. How can I maximize my ULIP returns?

You can follow a few simple steps to maximise your returns. The steps include:

• Starting early
• Investing regularly
• Paying your premiums on time
• Taking advantage of the strategies offered and investing in various funds
• Reviewing your investment portfolio every 6 months to make changes
• Adding top-ups to strengthen your investment
• Maintaining the ratio of investment to insurance to enjoy tax benefits.

15. What is the fund value in ULIP?

When you opt to purchase a ULIP, you have the opportunity to invest in various fund options based on your risk appetite and financial goals. The fund value is essentially the total monetary worth of all the fund units that you own at any given point. For example, you may hold 10,000 units. Each unit is valued at INR 20. This means your fund value is 10,000 x 20 = INR 2,00,000.

16. How much of the premium paid is used to purchase units?

The whole premium you pay does not go towards the purchase of units. These are purchased only after deducting different charges such as allocation, fund management, policy administration, and charges for providing insurance cover. The remaining amount is used to buy units.

17. What is ULIP NAV?

NAV, or Net Asset Value, is the value of each unit in a ULIP fund. NAV reflects the fund's market value. It helps track the performance of the ULIP's underlying investments.

18. What is the minimum lock-in period for ULIP?

The minimum lock-in period for a ULIP is typically five years. Policyholders cannot surrender or withdraw their funds during this period without incurring charges. This duration encourages a long-term investment horizon.

19. What should one keep in mind while investing in ULIP?

• Applicable charges
• Payment on premature surrender
• Investment fund options
• Features and benefits
• Limitations and exclusions
• Lapsing and its consequences
• Other disclosures

20. What are some advantages of ULIP's?

A. Market linked returns

Unit linked insurance plans give you an opportunity to earn market-linked returns as part of the premiums are invested in market linked funds which invest in different market instruments including debt instruments and equity in varying proportions.

B. Life protection, Investment and Savings

Unit linked insurance plans offer the twin benefits of life insurance and savings at market-linked returns. Thus, you have the opportunity to invest your money to earn higher returns, while taking care of your protection needs. Investing in unit linked Insurance plans helps to inculcate a regular habit of saving and investing, which is important for building wealth over the long term.

C. Flexibility

HDFC Life offers different ULIP's (Unit Linked Insurance Plans) which are just right for you and can help you meet your specific financial objectives.

• The option to switch between investment funds to match your changing needs.
• The facility to partially withdraw from your fund, subject to charges and conditions.
• Single premium additions to enable the policy holder to invest additional sums of money (over and above the regular premium) as and when desired, subject to conditions.

21. How is ULIP better than other investments?

ULIPs offer a unique combination of insurance and investment. They also lend flexibility in fund choices. In addition, there is potential for market-linked returns and tax advantage. All these features make ULIPs highly rewarding as compared to other investments.

ULIPs from HDFC Life

Having known the various advantages that ULIP offers, it is advisable to choose the right plan depending on your age group and the corresponding goals at various life stages.

Unit Linked Insurance Plans offer you a wide range of flexible options such as

• ULIPs for Children:

  • HDFC SL YoungStar Super Premium

• ULIPs for Savings & Investment:

  • HDFC SL ProGrowth Flexi
  • HDFC Life ProGrowth Plus
  • HDFC Life Click2Invest - ULIP

• Woman ULIPs:

  • HDFC Life Smart Woman Plan

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