ULIPs are Unit Linked Insurance Plans which come with the dual benefit of Insurance combined with investments. ULIPs provide a flexibility to the policyholders to choose their investment fund as per their risk appetite. So, if you wish to invest in the Equity Market or in the Debt Market along with an Insurance Coverage, ULIP is the answer to your needs. It provides the best of both worlds.
ULIPs are life insurance plans which provide policyholders dual benefits of investment returns as well as life insurance coverage. The premiums paid under the plan are invested in the capital market. Thereafter, the premiums grow with the growth of the market. The invested premiums along with the growth they have earned reflect the Fund Value of the plan. If the insured dies during the term of the plan, higher of the Sum Assured or the Fund Value is paid. In case of maturity, the available Fund Value is paid and the plan is terminated.
TULIPs have some salient features which put these plans in a different league of their own. These features include the following:
There are different types of ULIPs which are available in the market. These include the following:
Child ULIPs are children plans which are offered for creating a secured financial corpus for the child.
Pension ULIPs aim to create a substantial retirement fund by providing market-linked returns on the premiums invested.
These are simple savings-oriented ULIPs which pay either a death benefit or a maturity benefit.
ULIPs provide various benefits over traditional insurance plans and other investment avenues. Some of these benefits include the following:
Since ULIPs also provide market-linked returns like mutual funds, they are compared to mutual funds. However, mutual funds and ULIPs differ on the following parameters:
Not just with mutual funds, ULIPs have striking differences with traditional life insurance plans too. These include the following:
Before you invest in a unit linked plan, here are some things which you should know:
No, premiums are required for the premium payment term which the policyholder has selected. If a single premium ULIP is bought, only a single premium is required to be paid. For limited premium plans, premiums are payable for the specified limited period. But for regular premium plans, premiums are payable throughout the term of the policy.
Under most plans, the death benefit is higher of the Sum Assured or the Fund Value. However, for arriving at the sum assured, partial withdrawals made in the preceding two years are usually deducted.
There is no guarantee to the returns provided under ULIPs. The returns solely depend on the capital market. If the market performs exceptionally well, the premiums might double otherwise there is no guarantee of such high returns.
The first five years are the lock-in period. Partial withdrawals are allowed after the first five years. Though the plan can also be surrendered after the first five years, it doesn’t mean that the plan has completed its tenure. It simply allows policyholders flexibility. If the plan is stopped after five years, policyholders lose the benefit of higher returns which are available if they stay invested.
There are online ULIP calculators which help in calculating the expected Fund Value. The policyholder would just have to enter the amount of premium he wants to pay, the sum assured and the chosen tenure. The calculator then calculates the expected Fund Value at two rates of return – 6% and 10%. An illustration is shown which shows the premium paid, the charges deducted and the growth available under the Fund Value. The calculator thus shows the expected returns from the unit linked plan.
Here is a list of some of the best unit linked plans available in the market:
|Name of the plan||Minimum premium required||Salient features|
|HDFC Life Click2Invest Plan|
|HDFC SL ProGrowth Super II||Rs.15,000|
|Bajaj Allianz Future Gain||Rs.25,000|
|Bajaj Allianz Life Goal Assure||Rs.36,000|
|ICICI Pru 1 Wealth Plan|
There are a number of free switches allowed in a policy year. Any exceeding switches would be chargeable.
The maximum limit on partial withdrawal depends on the plan. However, usually, under most plans, at least one annual premium should be left in the fund value after the partial withdrawal.
Settlement option is a feature which is available in most unit linked plans. Under the option, the maturity proceeds can be chosen to be taken in five equal instalments after maturity.
Yes, top-up premiums also carry a top-up sum assured and increase the coverage. The sum assured allowed for top-up premiums is, usually, 1.25 times the top-up premium paid if the insured is below 45 years of age and 1.10 times the top-up premium paid if the insured is 45 years and above.
Yes, the policy can be surrendered any time. However, the surrender value is paid only if the policy has completed the first five years.
No, ULIPs are market-linked products which do not participate in bonus declarations.
Premium redirection means redirecting future premiums to another fund than which has been selected by the policyholder. If the policyholder is investing in Fund A and then chooses premium redirection feature and chooses Fund B, future premiums paid would be credited to Fund B.
Yes, ULIPs have three tax benefits which make the plan a popular choice. The premiums paid for the plan are tax-free under Section 80C up to a maximum of INR 1.5 lakhs. The maturity or death benefit received is also tax free under Section 10 (10D). Moreover, if the policyholder chooses the switching feature, any amount switched to another fund would also be tax-free.
No, top-up premiums are allowed by most ULIPs but not all of them.
On maturity, the Fund Value is paid under most unit linked plans.
Under most ULIPs, the death benefit is higher of the available Fund Value or the chosen sum assured. Some ULIPs also allow both the Fund Value and the sum assured as death benefit.
Yes, ULIPs allow single premium payments too. There are many unit linked plans with such an option.
Yes, ULIPs allow policyholders various optional riders. The rider charge is deducted from the unit value.
No, since ULIPs allow partial withdrawals, policy loans are not allowed.
Life Insurance Companies