What is ULIP (Unit Linked Insurance Plan)?
Full form of ULIP is Unit linked Insurance Plan. ULIP’s are a combination of insurance + investment. A small portion of the money invested goes to securing your life whereas the rest of the money is invested in the market. Policyholders can pay premiums monthly/annually.
In Unit Linked Insurance Plans (ULIP), the investments made are subject to risks associated with the capital markets. This investment risk in investment portfolio is borne by the policy holder. Thus, you should make your investment choice after considering your risk appetite and needs.
Another factor that you need to consider is your future need for funds. HDFC Standard Life offers you a variety of unit-linked insurance products to suit your goals - be it for your retirement planning, for your health, for your child's education and marriage or for investment purposes.
Which Investor Class Are They Most Suited For?
How ULIP Is Structured?In a Unit Linked Insurance Plan (ULIP), the premiums you pay are invested in the funds chosen by you after deducting allocation charges and charges including those for managing funds,policy administration and for providing insurance cover are deducted from the funds by cancelling certain units.
The value of each unit of a fund is determined by dividing the total value of the fund's investments by the total number of units.
Advantages Of ULIP?
- Market Linked Returns
- Life Protection Investment and Savings
Features of ULIP
Ulip ChargesThe following charges are deducted from your policy towards the cost of benefits and administration services provided by HDFC Standard Life Insurance -
Switching Between FundsHDFC Standard Life Insurance offers you the flexibility to switch between funds available under a unit linked Insurance plan.
You may wish to switch between equity and debt funds, in times when there is market volatility or interest rate fluctuations. At times, changes in your financial standing, liabilities or risk profile may also require that you change your investments accordingly.
You may also make partial withdrawals from your funds after a certain specified period, subject to a partial withdrawal charge. The withdrawal amount should be at least the minimum prescribed withdrawal amount and the fund must not fall below the minimum fund value after the withdrawal.
You can make a full withdrawal of your policy before its maturity date. However, surrender charges will be applicable in this case.
Benefits of ULIP
Let’s take a look at some of the ways a ULIP plan benefits you:
Makes Saving a Habit
When you put money away in a ULIP every month, you’re making disciplined savings a habit. As we all know, putting away savings is one of the main elements of every successful long-term financial plan. When you pay regular premiums on time, you can enjoy creating wealth for yourself while securing the financial future of your loved ones.
One of the most significant benefits of ULIP is that it offers life cover along with investment options. So, apart from creating wealth for yourself, these plans ensure that your family will be taken care of financially if anything untoward were to happen to you.
With a ULIP, you are completely in control of your finances. You can choose to switch your funds around at any point. This means that you can move your money from equity funds to balanced and debt funds or vice-versa. Additionally, you can choose to redirect future premiums to a different fund of your choice. If you’d like to invest more money later, you can top-up your ULIP. Most importantly, in certain cases, you will have the opportunity to partially withdraw some of the funds from the investment for financial emergencies.
As with most other investments and life insurance products, the money you invest in your ULIP is also eligible for tax benefits. Both the premiums you pay and the returns you receive can be exempt from taxes as per Sections 80C and 10D of the Income Tax Act, 1961 respectively. Additionally, if you choose to move your money from one fund to another, you will not have to pay any additional tax.
*As per Income Tax Act, 1961. Tax benefits are subject to changes in tax law.
The benefits of ULIPare countless. But, one of the reasons it continues to be a sought-after investment option is its growth potential. These plans allow you to invest in market instruments like debt and equity funds to grow your money. The returns you receive could help you achieve your long-term financial goals.
More Rewards Over Time
The longer you stay invested in your ULIP, the more time you have to enjoy bonuses such as loyalty additions or wealth boosters. Once you invest, you should commit to it for the long-term.
Income Tax Benefits of ULIP
You purchase a ULIP with two goals in mind. Firstly, you’d like to invest your money and grow your wealth. Secondly, you’d like to get life cover to protect the financial interests of your family. But, you can also enjoy certain ULIP tax benefits. As per the Income Tax Act, 1961, the premiums you pay are eligible for ULIP tax exemptionup to INR 1,50,000 per year. To enjoy this ULIP tax benefit, you must make sure that your sum assured is at least 10 times the annual premium you pay. If this requirement is not met, the maturity benefit will not be exempt from income tax and your premium tax benefits will be covered at 10% of your total sum assured.
Frequently asked questions
✅ 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.
✅ 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.
✅ 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.
✅ What is the fund value in ULIP?
A: 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.
✅ 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
✅ What are some advantages of ULIP's?
Market linked returnsUnit 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.
Life protection, Investment and SavingsUnit 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.
FlexibilityHDFC 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.
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