Investment

Unit Linked Insurance Plan (ULIP) - An Introduction

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Unit Linked Insurance Plans (ULIPs) are a category of goal-based financial solutions that offer dual benefits of protection and Investment.

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.

Though much has been written about ULIPs in the past, a lot has also changed for better. In 2010 the IRDAI issued new guidelines for ULIPs in order to improve the returns for investors by reducing charges and to ensure that the new product is sold and bought as a long-term protection and savings tool. For last few years the demand for traditional insurance plans has considerably gone up overshadowing the ULIPs. Let me bring back the focus on what a new ULIP is all about and what’s in it for you as a customer.

What makes ULIP a better investment product?

  1. Avoid everyday hassle of managing stocks : Invest in ULIP which provides you

    1. Expert fund management
    2. Multiple fund options – You can choose the type of fund in which premiums will be invested.
    3. Different Investment strategies like opportunist and Balanced approach
  2. Adapt your portfolio , don’t toggle it : ULIPs allow you to shift your money from one fund to another without disturbing your long term financial plan

    1. Fund Switching : Shift your funds from equity funds to debt funds or vice-versa
    2. Premium Redirection: Re-direct your future premiums to any fund of your choice while keeping your existing fund composition intact.
    3. Partial Withdrawal: ULIP’s provide flexibility to its policyholders to “partially” withdraw some amount of money from his own accumulated Fund Value before the policy tenure is over.

What are the unique features that it offers to customers?

  1. Investment and Insurance cover

    It’s a two-in-one plan in terms of giving an individual the twin benefits of life insurance and investment.
  2. Multiple investment options

    You can invest in multiple fund options based on your life stage needs and risk profile.
  3. Transparency and tax benefits

    You know what is the amount you are paying for the various benefits and you will also get tax benefits under section 80 C & 10(10D) as per prevailing tax laws.

What should one keep in mind while investing in ULIP?

  1. Applicable charges
  2. Payment on premature surrender
  3. Investment fund options
  4. Features and benefits
  5. Limitations and exclusions
  6. Lapsing and its consequences
  7. Other disclosures

Busting the myths

ULIPs are expensive: Charges are capped by IRDAI regulation since Sept 2010 .In simple words, overall charges cannot exceed the prescribed limit set by the regulator -the net reduction in yield cannot be more than 3% for a 10 year term policy. This reduction in yield includes all charges except mortality and morbidity charges. Even fund management charges (FMC) are capped at 1.35%. This capping of charges ensures a reasonable value proposition for the customers.

ULIPS offer low returns: There are several factors that enable the investor to get a good return:

  1. Invest for long terms: ULIP offered by Life Insurance companies are the only long term avenues for investing in disciplined manner, along with valuable life cover.
  2. Your choice for funds and judicious switching, redirection of funds/premiums will ensure that the fund growth is healthy.

We have observed that following these tips help the customer lock in good returns upon maturity.

 

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