5 Features You Must Know About ULIPs

The insurance market is filled with numerous plans that offer great benefits. These insurance plans are tailored to meet the specific requirements of their customers. Most of these insurance plans are designed to provide the policyholder with basic insurance coverage. However, among these plans, there is one plan that allows customers to protect their loved ones and build wealth at the same time. It is called ULIP insurance.

What is a Unit Linked Insurance Plan?

ULIPs are insurance plans that provide policyholders with the ability to get insurance coverage and build stock market returns at the same time. ULIPs are considered good investment options. ULIP plans are structured to help the policyholder secure the life goals like wealth creation, retirement planning, or securing a child’s educational future. When individuals purchase a ULIP plan, they will be at peace knowing the premiums are working towards building their financial goals.

5 features of ULIP plans are:

  1. Dual benefit:

When an individual decides to buy a Unit Linked Insurance Plan, he/she will get the dual benefit of insurance coverage along with investments. In ULIPs, the premiums paid by the policyholder are split into two parts. The first part is kept for insurance coverage, and the second part is allocated towards investment options. The policyholder will decide the investment instrument. It will provide the beneficiaries with insurance coverage and provide good returns when the plan reaches maturity. With ULIPs, the insured gets the option to invest in a wide range of funds which are a mix of equity and debt, so as to achieve the long-term financial goals.

  1. ULIP Taxation benefits:

A policyholder gets a triple tax benefit on ULIPs. It means the policyholder will get the tax benefits on the premiums paid, the earnings obtained and the withdrawal amount received. As per Section 80C of the ITA, the premiums paid towards an insurance plan are eligible for a tax deduction. The interest and the maturity amount obtained from the plan are also eligible for tax deductions as per Section 10(10D).

  1. Flexible investment options:

In a Unit Linked Insurance Plan, the policyholder is provided with the ability to switch between the chosen investment instruments. With the ability to switch, the insured can change the ratio of the invested amount to shift the funds from debt to equity or opt for a combination of both. The policyholder can make the changes depending on the risk profile and requirements. It is advised to opt for equity instruments during the initial years and switch to debt funds as the plan reaches maturity. This is because equity funds carry higher risk compared to debt funds.

  1. Top-up service:

Certain Unit Linked Insurance Plans allow the policyholder to increase the amount of investment made. This method is called a ‘top-up’ to put an added amount over and above the existing ULIP policy. The individual can also get tax benefits with these top-ups.

  1. Charges:

There are 5 charges around ULIPs- policy administration charges, mortality charges, fund management charges, surrender charges, and premium allocation. While the charges may make the plan seem a bit expensive, the ULIPs today have changed entirely. Different charges like premium allocation, surrender charges, and policy administration charges are removed. Along with this, with long-term ULIPs, the plans will help the insured to recover all the charges dealt with in the initial years of the investment.

Summing up:

Unit Linked insurance plans or ‘ULIPs’ are insurance cum investment plans that allow policyholders to build wealth and ensure insurance coverage for themselves. With ULIPs insurance, the policyholders can switch between the funds they have chosen as per their requirements. Before purchasing a ULIP, the customers should get a clear understanding of the returns they can get. Many companies like TATA AIA insurance have provided ULIP calculators on their websites to help the customers.

Some general questions by customers: 

What are the benefits of ULIP?

ULIP plans are insurance plans that provide the policyholder with the ability to get insurance coverage along with stock market returns. With the ULIP plan features; there is an option to switch between investment funds during the plan’s tenure. Along with this, the policyholder gets tax benefits on the premiums, returns, and maturity benefits.

What is ULIP, and how does it work?

A Unit Linked Insurance Plan is an insurance plan in which the policyholder’s premiums are split into two parts. The first part is kept for insurance coverage, and the second part is invested in different fund options in the stock market as per the policyholder’s choice.

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