Unit Linked Insurance Plans
IN ULIPS, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
What is ULIP (Unit Linked Insurance Plan)?
ULIP is an insurance product that combines insurance and investment benefits in a single plan. ULIP, or Unit Linked Insurance Plan, offers life cover` which is a major benefit over the traditional wealth creation tools. It not only helps your money grow but also protects your loved ones’ future from life's unexpected turns.
How ULIPs work?
The investment component of ULIPs allows investors to invest money in the asset classes and funds of their choice – equity, debt, and balanced.
On surviving the term of the ULIP, the policyholder receives the maturity value and can use the money for various financial goals.
In addition to this, the life insurance component of a ULIP offers a death benefit in the unfortunate event of the policyholder’s demise during the term.
In such cases, the nominee is paid the entire sum assured amount even if the investment value of the plan is lower.
Benefits of ULIPs
Flexibility of Investment
You will have flexibility and control of your money through the following ways:
- Fund Switch – An option to move your money between equity, balanced and debt funds
- Premium Redirection – An option to invest your future premium in a different fund of your choice
- Partial Withdrawal## – An option that allows you to withdraw a part of your money
- Top-up – An option to invest additional money to your existing savings
Tax Benefits~
Regular Savings
Potential for Growth
There is a potential of earning higher returns from the power of equity and debt funds. This will help you achieve your life-goals such as buying a new home, your dream car, funding your child’s higher education and much more.
Protection
ULIPs provide the protective benefit of a life cover`, which protects your family financially in case of an unfortunate event.
Greater Rewards for Staying Invested***
Your money grows further as the insurance company adds to your savings through bonuses/ additions and are available to you in ULIPs in different forms such as, Loyalty Additions^^ and Wealth Boosters^.
How to find the best ULIP?
Selecting the best ULIP investment plan requires some research and evaluation. Below are some things you must focus on to ensure you choose the best option for your needs:
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Personal Investment Goals:
ULIP plans offer a wide range of funds$ – equity, debt and balanced. The right plan for you can be chosen according to your personal investment goals. For instance, equity offers high risk and return and can be ideal for long-term goals. On the other hand, debt funds offer stability but at comparatively lower returns, making them suitable for short-term objectives. Balanced funds strike a balance, combining both equity and debt for moderate risk and return.
You can select a suitable plan by evaluating your risk appetite, financial goals and investment preferences. These factors can help you make an informed choice and ensure your investment strategy is accurately tailored to your needs.
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Compare ULIPs:
There are several ULIP insurance plans in the market. Each of these can cater to different goals and risk appetites. The costs associated with a ULIP can also differ from plan to plan. Therefore, it is recommended to compare multiple plans to ensure you select a suitable option.
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Flexibility:
A flexible ULIP investment plan allows you to choose from a range of options. You can select different funds$, like equity, debt and hybrid. You can also choose from multiple premium payment methods, such as annual, monthly or even a one-time payment. It is essential to look for ULIPs that offer such flexible options, along with features like fund switches, partial withdrawals and top-up contributions to ensure you make the most out of your plan.
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Risk Profile and Financial Stability:
Assessing your risk profile and financial stability can help you understand the amount of risk you can take in your investment. This can help you make informed investment choices and choose funds that align with your financial goals.
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Investment strategies offered:
Many ULIPs offer investment strategies such as Systematic Transfer Plans and lifecycle based investing. Look for ULIPs that offer the strategies most suited to your goals.
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Claim Settlement Ratio:
This figure tells you what percentage of claims have been paid out by the insurance company. The higher the ratio, the better. ICICI Pru Life has a claim settlement ratio** of 99.17%.
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Solvency Ratio:
This ratio tells you whether the insurance company will be able to honour its claims in the future. Once again, look for a high ratio for solvency. The IRDA requires insurers to have a solvency ratio of at least 1.5. ICICI Prudential Life Insurance has a solvency ratio# of 1.91.
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Performance of ULIP funds:
ULIPs are an investment as well as insurance products. You should review the performance of ULIP funds over long term. Remember that ULIPs can have equity, balanced and debt funds suitable for investors/policy holders with different risk appetite and investment time horizon. ULIP equity funds offer high returns with high risk and debt funds offer lower returns with lower risk. The performance of ULIP funds should compared with their respective benchmarks over long time periods (eg: Nifty 50, BSE100, NSE 500, BSE 200 or Crisil Composite Bond Index).
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Charges:
Go for a ULIP with affordable charges. The typical charges associated with a ULIP include a premium allocation charge, policy administration charge, fund management fee, mortality charge, discontinued premium charge and switching charge.
How to calculate returns with a ULIP Calculator?
Several factors can impact your ULIP returns. These can include:
Investment term
The length of your policy term can impact your overall returns. Staying invested for the long term may fetch you better returns as your money has more time to compound.
Type of fund
Equity funds carry high risk but also deliver relatively higher returns. Balanced funds can deliver moderate returns and medium risk in comparison. Finally, debt funds may offer the lowest returns and risk out of the three.
Rate of return
The return rate will determine the fate of your profits. The higher the return rate, the higher would be your yield and vice versa.
Calculating your returns based on these factors may be hard. But a ULIP calculator can help. A ULIP calculator is an excellent online tool to calculate and plan your ULIP investment. ULIP have many different features that can help you understand your investment better. You can use it to compute your expected returns and the total maturity value. This can help you choose an appropriate investment amount based on your future goals, budget, time horizon, and other similar factors, mentioned above.
Types of ULIPs
Below are some key types of unit linked insurance plans
Single Pay Plans
Single pay ULIPs allow you to pay the entire premium for the plan in one go. You can pay the premium at the beginning of the policy term and enjoy the features of the plan for the rest of the tenure. This can be a convenient option if you do not want to go through the hassle of paying regular premiums over the years. You can also consider this plan if you want to invest a lump sum amount to meet your financial goals.
Regular Pay Plans
Regular Pay ULIPs are those where Premium Payment Term and Policy Term are the same. Premium Payment Term is the duration for which you pay your premiums. Policy Term is the duration for which your policy remains active. Depending on your plan, you may choose to pay your premiums monthly, half-yearly, or yearly, as per your convenience. With regular pay plans, you can make small, regular premium payments over time, thereby going easier on your pocket.
COMP/DOC/May/2023/295/3141
Why should you invest in ULIP?
With ULIPs, avail the benefits of both Investment and Insurance
Life Cover`
ULIPs not only help you secure your goals but also secure your family by providing a life cover if something happens to you.
Goal-based savings
Designed to address key financial goals, ULIPs help you invest your money in a disciplined manner.
Tax Benefits~
Under the Income Tax Act 1961, you can save taxes on your money at different stages of your ULIP policy.
Flexibility
ULIPs give you an option to invest in equity, debt or a mix of both. Choose a plan according to your risk profile and investment objectives.
ULIP Myth Busters
There are many myths around ULIPs. Let’s find out the truth about them:
ULIPs are costly
ULIPs are risky
Your life cover could reduce in ULIPs
ULIPs give low returns
ULIPs are not flexible
No matter what your need is, we have a solution
Take a look at the wide range of Unit Linked Insurance Plans that we offer:
ICICI Pru Signature
Designed for the preferred customer like you, ICICI Pru Signature offers life cover to secure your family along with flexible investment options to help you achieve your goals.
- Financial protection for your loved ones with life cover`
- Return of all Premium Allocation charges more than onceπ
- Choice of 4 portfolio strategies and wide range of funds$
- Enjoy policy benefits till 99 years of age with Whole Life policy term option
ICICI Pru Life Time Classic
Fulfill your family’s dreams and desires with the growth potential of equity or debt along with a life cover to safeguard their future in your absence.
- Choice of portfolio strategies to suit your needs
- Easy access to your money
- Enjoy the safety of a life cover` based on your desired level of protection
- Rewards α (Wealth Boosters and Loyalty Additions) for long term investments
How to manage ULIP funds?
Invest for long-term
ULIPs are a long term investment and hence you should only invest in them with a long term time horizon. Note that the minimum lock-in period is 5 years, so you must be prepared to invest for at least that long.
Having said that, ULIPs do offer systematic withdrawals at various milestones of your life. So, you can take your funds if you require them for specific goals or need money unexpectedly for an emergency.
Switch funds whenever necessary
Adopt the lifecycle-based strategy
Review the performance of your funds and make changes if required
You should periodically review the performance and prospects of your ULIP funds. You should switch out of ULIP funds which have underperformed or funds whose asset class is overvalued.
You can do this by switching out of an equity ULIP fund and moving into a debt ULIP fund. Switching between funds is tax-free~.
It may attract some costs but many ULIPs give a certain number of free switches to investors every year.
Key Takeaways
- A unit-linked insurance plan is a product that offers a combination of insurance and investment payout.
- Unit-linked insurance plans are long-term investment instruments with a minimum lock-in period of 5 years.
- ULIP offers a life cover` that offers where a sum assured amount to the nominee if the policyholder passes away during the term of the policy.
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Frequently Asked Questions
Is Unit Linked Insurance Plan safe?
ULIPs or Unit Linked Insurance Plans are safe instruments given a long-term investment horizon. You can choose to invest in low-risk debt funds, high-risk equity funds, or a mix of both as per your risk appetite. You can track your investments from time to time and switch between the funds as per your requirements. You can also withdraw money from the plan as per your requirements after the lock-in period of five years. These features provide you the necessary flexibility and make ULIPs safe to invest in.
Is partial withdrawal taxable in Unit Linked Insurance Plans?
Partial withdrawals## from ULIPs or Unit Linked Insurance Plans are tax-free~ subject to conditions prescribed under Section 10(10D) of the Income Tax Act, 1961.
Is GST applicable on ULIPs?
Yes, a GST~ of 18% is applicable on the charges in case of ULIPs. GST is not applicable on investible portion.
Can I stop paying premium for my ULIP after 5 years?
ULIPs have a lock-in period of 5 years. If you do not wish to continue after 5 years, you can surrender your policy. However, ULIPs provide you with a life cover that protects your loved ones financially, and help you grow your money to fulfil your dreams. Hence, it is always recommended to continue your policy till the end of the term.
Is ULIP a good investment?
A ULIP is both an insurance policy and an investment. Besides providing life cover, ULIPs can help you achieve your life goals with the power of market linked returns. ULIPs inculcate the habit of regular and disciplined savings, which is the key to successful long-term financial planning. With regular premium payments, you can enjoy the benefits of wealth creation for your loved ones.
What is the right time to invest in ULIPs?
There is no right time to invest in ULIPs. The earlier you start, the faster you can achieve your goals.
Is income from ULIP taxable?
The maturity proceeds of a ULIP is tax-free~ subject to conditions prescribed under Section 10(10D) of the Income Tax Act, 1961. If the ULIP investor dies during the term of the ULIP, the death benefit specified in the ULIP policy and the amount received on death is also tax-free~ subject to conditions prescribed under Section 10(10D) of the Income Tax Act.
How do I maximise my ULIP return?
You can practice the following to maximise your ULIP return -
- Start early
- Invest regularly in a disciplined fashion
- Pay premiums on time
- Take advantage of various fund options and strategies
- Review your portfolio regularly and make changes in funds$ or portfolio strategy as required
- Add top-ups to your fund to strengthen it
What is minimum lock in period for ULIP?
Investing in a ULIP is meant for the long-term. Though ULIP have 5 year lock-in period, to reap more benefits from the ULIP, you should continue and stay invested for longer periods such as 10-20 years.
What is fund value in ULIP?
Under a ULIP, the policyholder can choose from a set of funds to invest in according to their risk appetite and goal. The total monetary worth of the fund units owned by the policyholder is termed as fund value. For instance, if the policyholder owns 15000 units at the current price of ₹ 20 per unit, then the fund value is 15000 X ₹ 20 = ₹ 3 lakh
How can I track my ULIP fund value?
ULIP fund value can be calculated by multiplying the number of units in each fund by the Net Asset Value (NAV) of the fund on that day. The NAVs are published on the respective company’s website and many financial newspapers. You can also track your fund value by signing into your secured account on our website.
Can I cancel my ULIP plan?
Yes, if you are not satisfied with the terms and conditions of your policy, you can cancel it within -
- 15 days from the date it is received, if the policy is purchased through solicitation in person
- 30 days from the date it is received, if the policy is an electronic policy or is purchased through distance marketing
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