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Types and Benefits Ulip Plans - Here's What You Need to Know

May 20, 2019
ULIPs are Unit Linked Insurance Plans that serve as joint instruments for insurance coverage and investment through a variety of fund options. ULIPs come with a lock-in period of 5 years and therefore, enable financial discipline through regular investments which makes them ideal for long term financial goals. ULIPs also have the feature of permissible switches between various fund options that makes them very flexible and the subscriber gets to choose the fun option as per her/his risk appetite. Besides, investments in a ULIP come with tax benefits under Sections 80C and 10D of the Income Tax Act, 1961 and are also exempt from LTCG taxation. When the policy holder pays the due premium, it is divided into two parts - one part is channelized towards the premium towards the insurance coverage while the other serves as investment towards the multiple fund options. This means that a part of the payable premium is meant for maintaining the insurance coverage i.e. the life coverage while the other is meant for driving the investment bit through the various fund instruments.

ULIPs very crucial components of a successful financial portfolio. The benefits can be assuaged from the following facts:

  1. ULIPs have a lock in period of five years. This ensures that premiums are paid in a disciplined manner and there is financial regularity. This makes ULIPs ideal for mid-term to long-term goals.
  2. The payable contributions towards ULIPs are tax-exempt under Section 80C and Section 10D of the Income Tax Ac. 1961. As per the government mandate, the Long Term Capital Gains (LTCG) tax is not applicable for investments made in ULIPs thereby enhancing the tax-efficiency of ULIPs.
  3. Unit Linked Insurance Plan offer the feature of fund switches between multiple fund options. This means that the policy holder can switch between fund options depending on how a particular fund is performing at the market. The insurers provide this switch option free of any cost up to a maximum of 10 or even 12 switches. After this, a nominal fee for switching between funds is charged. Therefore, ULIPs are very flexible in terms of the customer's preferences and offer a credible flexibility that allows the policy holder to make informed decisions.
  4. The investment fund options offered by ULIPs cover both equity and debt-based instruments. Therefore, the overall gains earned from a ULIP are stable and optimum in the long run.

Depending on the nature of payable premiums, financial goals and nature of fund options, ULIPs are of several types. Following are the different types of ULIPs:

  • Single-premium ULIPs:

    As the name suggests, these are the types of ULIPs in which the policy holder pays the total payable premium in the form of a one-time lump-sum payment.

  • Regular premium ULIPs:

    In these ULIPs, the payable premium is paid over a period of time and the frequency of payment is decided as an agreement between the policy holder and the insurer. The frequency may be monthly, bi-annual or annual.

  • Equity-fund based ULIPs:

    These ULIPs offer high-risk investment options of equity funds as investment vehicles. Although the risk factor is quite high, but the potential returns are quite high.

  • Debt-fund based ULIPs:

    These ULIPs offer government securities, corporate bonds i.e. fixe interest instruments as investment vehicles and hence, the risks involved are quite low. These ULIPs are ideal for people with low risk appetite and for those for whom fund security is rather more important than the possibility of higher returns.

HDFC Life offers HDFC Life Click 2 Wealth - a unit linked plan that offers market-linked returns with minimal charges.

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