ULIP PLAN
The insurance sector in India has been evolving rapidly. Life insurance penetration has witnessed a surge, from just 2.82% in 2019 to 3.2% in 2020. In addition to the rise in life insurance penetration, the range of life insurance products offered by the industry has also grown over the years. Among the many kinds of life covers available in the Indian insurance market today, ULIPs or Unit Linked Insurance Plans are one of the effective products.
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What Is Term Insurance?
Term insurance is a type of life insurance in which the life insurance company provides a predetermined amount to the beneficiary in case of an unexpected death of the policyholder. Term insurance is also known as a pure protection plan. It offers a budget-friendly plan that offers more coverage at an affordable premium.
For example, a healthy, non-smoker 24-year-old male can get INR 1 crore cover for his dependents for the next 25 years. If he buys a term insurance plan, he can get term insurance of 1 Crore for less than INR 600. This shows that it is the most economical option as compared to other life insurance plans.
ULIP Terms You Should Be
Familiar With
SUM ASSURED
The sum assured is the amount guaranteed to be paid to the nominee by the insurer under the ULIP plan, in case the insured person passes away during the policy term.
LOCK IN PERIOD
The lock-in period in a Unit Linked Insurance Plan is the specified period during which the policyholder cannot exit the plan. For ULIPs, the lock-in period is 5 years.
FUND VALUE
The fund value of a Unit Linked Insurance Plan is the total market value of all the units in the ULIP funds you hold. It is simply the monetary worth of your investments.
TOP UP PREMIUM
The top-up premium is an additional amount that you can pay voluntarily over and above your regular premium, in order to increase the amount invested in your ULIP funds.
Who Should Invest In ULIPs ?
ULIP plans cater to a wide variety of customers. To understand who should buy ULIP, one should focus on why I should invest in ULIP. Every individual has his/her own reasons to make an investment. The target audience for ULIPs can be categorized into four segments.
Cover Against People with varying risk appetite
ULIP plans have found numerous takers primarily due to the broad range of market-linked investment funds that it offers and how it can help one to achieve their Life Goals. Most ULIPs have funds consisting of equity and debt funds or a combination of both. Some ULIPs invest higher in equity funds while others invest higher in debt funds.
People with a long-term investment horizon
Varieties of investment plans are available in the market. Some are targeted at short-term investors while some cater to long-term investors. ULIPs are structured to provide optimum returns for people having a long-term horizon. A ULIP plan offers a variety of equity and debt funds for investment to the policyholders.
Investors Across Life Stages
People in different life stages have different needs and ULIP plans can be tinkered to cater to all. It does not matter if you are 20, 35 or 50. Whatever your age is, you are sure to have certain life goals and dreams that you hope to fulfil.
Features of ULIPs
ULIPs or Unit Linked Insurance Plans share many features with other kinds of life insurance plans. That said, ULIPs also come with many distinct features that set them apart from other types of life covers. Understanding these features of ULIPs can help you learn how to make the most of your Unit Linked Insurance Plan.
ULIP Fund switching
The fund switching feature of a Unit Linked plan enables policyholders to move their money from one market-linked fund to another within the same plan to manage their returns. Policyholders can choose the funds as per their financial goals and risk tolerance capacity.
Partial withdrawals in ULIPs
The fund switching feature of a Unit Linked plan enables policyholders to move their money from one market-linked fund to another within the same plan to manage their returns. Policyholders can choose the funds as per their financial goals and risk tolerance capacity.
ULIP charges
The fund switching feature of a Unit Linked plan enables policyholders to move their money from one market-linked fund to another within the same plan to manage their returns. Policyholders can choose the funds as per their financial goals and risk tolerance capacity.
ULIP Lock-in period
Unit Linked Insurance Plans, unlike traditional investment plans, come with a lock-in period of 5 years. During this period, you cannot make any withdrawals from your investment. Even if you decide to discontinue your policy during the lock-in period
Benefits Of ULIPs
Asset Allocation in ULIPs
Asset allocation refers to the strategy of allocating your capital across different ULIP funds offered under your policy.
Tax Benefits of ULIPs
In addition to the benefits outlined above, ULIPs also offer the advantage of tax savings in more ways than one.
A Guide To ULIP Charges To Invest
Better In Them
ULIP plans cater to a wide variety of customers. To understand who should buy ULIP, one should focus on why I should invest in ULIP. Every individual has his/her own reasons to make an investment. The target audience for ULIPs can be categorized into four segments.
ULIP Fund Management Charges
Once you invest in select ULIP funds, your money and your assets are all managed by skilled fund management experts who decide which stocks or bonds to invest in and how much to invest in each asset. They also monitor the assets and the price changes therein. Ultimately, the expertise of these fund managers helps policyholders earn optimal returns from the market-linked funds they choose to invest in.
Policy Administration Charges
There are various administrative tasks related to a Unit Linked Insurance Plan, such as regular paperwork and record keeping. To cover the expenses incurred for these administrative tasks, you need to pay policy administration charges. Typically, these ULIP fees and charges are deducted by redeeming the required number of units at the prevailing market price from the account of the policyholder.
Mortality Charges
ULIPs have an insurance component too, meaning that they offer a life cover to the insured person. So, in case of the insured person’s demise during the policy term, the insurance provider pays out the death benefits under the plan to the nominees mentioned therein. To compensate for the risk associated with the insured person’s life, insurance providers levy a mortality charge on the ULIP.
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