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In ULIP Plan, the investment risks in the investment portfolio is borne by the policyholder

What is ULIP?

Unit Linked Insurance Plans (ULIPs) are a type of life insurance plan that offer the dual benefits of life insurance and investment. A portion of the premium paid for a ULIP is invested in a variety of market-linked funds, while the remaining portion is used to provide life insurance coverage.

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Benefits of ULIP

What is ULIP?- Features and Benefits

What is ULIP plan
February 16, 2024

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.

Introduction

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.

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Merge the power of Investment with the security of insurance. Our ULIP Plans are crafted to boost your savings while offering safety net for your family.

 

 

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How Does ULIP Work?

ULIP offers investors an opportunity to invest towards a life insurance policy and mutual fund with a single plan. The amount which you invest in ULIP is referred to as premiums. This amount is divided into two parts, one of which is invested towards debt, equity or hybrid mutual funds as per the market scenario. The other part is used to buy life coverage like any life insurance policy.

The investment part of a ULIP works similarly to mutual funds. It is invested into equities, debt or a combination of both assets; you get the option to choose a plan or switch between plans. Like mutual funds, you are assigned units in proportion to your investment. Each unit has a daily NAV (Net Asset Value) which reflects the value of the underlying assets.

Unit-linked plans are handled by professional fund managers who closely study the market movements and invest the required portion of your premium accordingly. They will again study the market movement after investing the funds and make changes as and when required.

After this policy matures, you will receive the total maturity amount which consists of an aggregate of your investments across all funds. However, in case of death of the beneficiary, the nominee will receive the higher amount from fund value, sum assured or 105% of the premium that he has paid to date.

How to Choose the Best ULIP Plans?

You can keep the following factors in mind to choose the best ULIP plan for your finances.

  • Choose a ULIP Plan Aligning with Your Investment Goals

    When investing in ULIP, you will get an option to choose from equity, debt or hybrid mutual funds. Consider choosing the fund keeping your risk appetite and investment goal in mind. For instance, you can opt for a hybrid fund to generate decent returns without facing drastic losses owing to market volatility.
  • Stay Invested with ULIP for the long term

    ULIP Plans are beneficial when you stay invested for the long term. Therefore, you must always opt for a plan that will allow you to stay invested for a longer period. With a long-term ULIP plan, besides returns on maturity, you can enjoy perks like loyalty additions to include your family members or wealth boosters to increase your sum assured.
  • Go for a Necessary Amount of Life Insurance Cover

    Besides growing wealth with mutual fund investment, another aim of a ULIP plan is to provide life insurance coverage. It helps you to fund long term goals like children's marriage or education. It also helps cover the financial requirements of nominees in case of a beneficiary's death. So you need to have a clear idea about your future needs and opt for a plan that can cover them.
  • Have an Idea about ULIP Charges

    Before investing in a plan, consider studying the insurance company's website to learn about additional ULIP charges. If you choose a plan ignoring the additional charges, you might have to pay them along with your premium. This can eventually burden your finances and lead to monetary indiscipline. Here are five main extra charges that you might need to pay for your ULIP.
  • Mortality charges
  • Fund management charges
  • Premium allocation charges
  • Policy administration charges
  • 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).#

Which Investor Class Are They Most Suited For?

  • Those who wish to closely track their investments

    Unit linked insurance plans allow policy takers to closely monitor their portfolios. They also offer the flexibility to switch your capital between funds with varying risk-return profiles.
  • Individuals with a medium to long term investment horizon

    ULIPs (Unit Insurance Linked Plans) are ideal for individuals who are ready to stay invested for relatively long periods of time.
  • Those with varying risk profiles

    Across the seven funds offered, the equity component varies from zero to a maximum of 100 per cent. Thus there is a choice of funds available to all types of investors - from risk-averse investor to those investors who have strong risk appetite.
  • Investors across all life stages

    This plan category offers a variety of plans which can be opted for depending upon the life stage you are in and your needs and financial liabilities at that point in time.

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?

  1. Market Linked Returns
  2. Life Protection Investment and Savings
  3. Flexibility
  1. 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.
  2. 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.
  3. Flexibility

    HDFC Life offers different ULIPs (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.

Features of ULIP

  • Single Premium

    The policy holder is required to pay the entire premium amount as a lump sum at the beginning of the policy term.
  • Regular Premium Payment (annually, semi-annually or monthly)

    The policy holder has to pay the pre-determined premium amount periodically i.e. annually, semi-annually or monthly, depending upon the premium payment term opted for.
  • Number of Premium Paying Years

    This depends on the term of the policy that you have chosen. In most cases, the policy term and the number of premium paying years (in case of regular premiums) are the same. However, some policies give the insured the option of choosing the number of premium paying years.

Fund Options Under ULIP

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

  • Balanced or Hybrid Funds

    Balanced or hybrid funds invest in both equities and debt securities. They can generate high returns from a bullish market owing to their equity fund-like traits. However, unlike equity funds, investors are less likely to suffer major losses. Thus it is a good investment option for investors with moderate risk appetite.
  • Growth or Equity Funds

    These funds invest in equity and equity-related instruments and hence are highly exposed to market volatility. If you are looking for high capital growth and are willing to take high risk for it, you can invest in equity or growth mutual funds.
  • Debt Funds

    These funds invest in debt instruments like government securities, corporate bonds and a few low-risk income instruments. These generate stable and regular income. Debt funds are relatively safe investments that do not usually suffer losses from market movements. This makes them ideal for conservative investors.
  • Cash Funds

    These funds invest in money market instruments, bank deposits and cash. Therefore this mutual fund is also known as money market mutual funds. Fund managers handle this fund in such a way as to generate higher returns while controlling risk factors by adjusting lending duration. 

Ulip Charges

The following charges are deducted from your policy towards the cost of benefits and administration services provided by HDFC Standard Life Insurance -

  • Administration charges

    A fee is charged for administration of your policy every month. Administration charges are deducted by cancelling units proportionately from each of the funds you have chosen.
  • 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.
  • Switch charges

    You can switch between the funds available to suit your changing needs and goals. In a policy year, a fixed number of such switches are available free of cost. Subsequent to this, each switch would attract a certain charge. These charges are deducted by cancelling units proportionately from each of the funds you have chosen.
  • Surrender charges

    These charges are levied for premature encashment of units. 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

    Depending upon the age, and the amount of cover, these charges are levied towards providing a death cover to the insured.
  • Premium Allocation Charge

    This charge is deducted as a fixed percentage of the premium received, and is usually charged at a higher rate in the initial years of a policy. This charge varies depending upon whether the policy is a single premium plan or regular premium policy, the size of the premium, premium frequency and payment mode.
  • Partial Withdrawal Charges

    Lump sum withdrawals are allowed from the fund after the lapse of three years of the policy term and subject to pre- specified conditions. However, such withdrawals attract charges, as mentioned in the respective policy brochures.

Switching Between Funds

HDFC 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.

Making Withdrawals

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.

Invest in ULIPs

 

Benefits of ULIP

Let's take a look at some of the ways a ULIP plan benefits you:

  1. 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.

  2. Offers Protection

    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.

  3. Flexible Investments

    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 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.

  4. Tax Benefits

    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.

  5. Growth Potential

    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.

  6. 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.

  7. 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 exemption up 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

  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. 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.

  3. How can I maximize my ULIP returns?

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

    1. Starting early
    2. Investing regularly
    3. Paying your premiums on time
    4. Taking advantage of the strategies offered and investing in various funds
    5. Reviewing your investment portfolio every 6 months to make changes
    6. Adding top-ups to strengthen your investment
    7. Maintaining the ratio of investment to insurance to enjoy tax benefits.
  4. 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.

  5. 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
  6. What are some advantages of ULIP's?

    1. 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.
    2. 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.
    3. 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.

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

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Reviewed By Reviewed By:
HDFC life
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HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

#The above tax benefits are subject to conditions specified u/s 80C and u/s 10(10D) of the Income tax Act, 1961.

The afore stated views are based on the current Income-tax law. Tax Laws are also subject to change from time to time. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

ARN - MC/12/23/6995