How Do ULIPs Meet Your Insurance And Investment Needs

ULIPs, or Unit Linked Insurance Plans, are hybrid financial instruments. They help you get a safe life cover while adding to your investments’ corpus. ULIPs help meet your future financial needs, such as retirement funds, children’s schooling, and medical bills.

What Is a ULIP?

A ULIP plan is a good way to invest and get life insurance. A part of your monthly contribution to a ULIP goes toward life insurance coverage and the rest into mutual funds or stocks, as specified. So, a ULIP provides a passive income source while protecting your family in the event of your demise.

How do ULIPs work?

• Before using ULIPs to engage in the capital market, you must choose:a. The level of life insurance.b. Premium amount and payment method.c. Policy terms to meet your financial security.d. Savings objectives.
• Selection of the frequency of premium is upto you. You can choose from the upfront, lump sum payment option and recurring payments on an annual, biannual, or monthly basis.
• Your payment includes a percentage that goes toward a life insurance policy.
• The remaining part of your premium may be invested in the stock market using equity, debt, or hybrid funds, depending on your choices.
  • Equity puts your money in stocks.
  • Debt funds invest in secure assets like bonds and government instruments.
  • Hybrid funds balance the security of debt funds and the high-return potential of equity.
• The cash invested in these funds determines the value of your coverage. Long-term investments boost your chances of making higher profits.
• Suppose an accident occurs during the insurance period. Your nominee will get the guaranteed sum to pursue their goals.

ULIPs: The Insurance Element

In ULIPs, policyholders are entitled to maturity rewards if they are alive after the policy term is complete, and they have made regular premium payments. You need to submit the discharge form and the necessary supporting papers. You become eligible to receive the amount after filing the necessary paperwork. Potential bonuses and loyalty benefits are also offered in certain cases. If the policyholder dies during the policy term, the insurance money would go to the nominee along with any other dues.

ULIPs: The Financial Element

When investing under ULIPs, a fraction of the total sum is meant for investment. The procedure under ULIP offers a high degree of freedom based on your needs. You can choose between bond, equity, and diversified funds. Professional, well-trained fund managers are in charge of the money used for investments. You may choose from various fund alternatives including debt, equities, etc.

Each of these investment alternatives has a different amount of risk. A greater risk would mean a bigger possible return. When selecting investment choices, consider your requirements and level of financial stability.

Evolution of ULIPs

Over the last 10 years, there have been many big changes in the Indian stock market. These have also affected how ULIPs are put together.

• ULIPs before 2010

When ULIPs first entered were introduced, they did not gain much traction. This was because of the high up-front costs and extra charges. At that time, ULIPs were also presented as a three-year savings plan. Investors were also not clear about the lock-in period because there was a lack of information related to ULIPs. 

• ULIPs from 2010 to 2015

As soon as IRDAI discovered that ULIPs were being offered to consumers, it created a set of rules. These rules ensured that investors’ returns were protected and remained steady. So, ULIP costs were reduced as compared with those in 2010. Also, the time the period for which an investor had to stay put was set at five years. 

• ULIPs in 2015

In 2015, there were several big changes to the fees for ULIPs. There were limits on the morality fees and the costs of running the funds. After that, investors found ULIPs more appealing and tempting. 

Benefits of ULIP

ULIP offers the possibility of making handsome long-term returns to investors. ULIPs invest in various assets including debt, equity, and balanced funds. Here are a few other advantages of ULIP plans:

• Life insurance: ULIPs provide life insurance coverage. This helps secure the financial future of your loved ones in case of your untimely demise.
• Investment opportunities: ULIPs allow you to invest your money in various asset classes like equity, debt, and balanced funds. This lets you choose an investment option that suits your risk appetite and financial goals.
• Tax benefits: ULIPs offer tax benefits for the premiums paid under Section 80C of the Income Tax Act, 1961. The maturity and death benefits are tax-free under Section 10(10D).
• Flexibility: ULIPs offer flexibility in switching between different investment options and altering the sum assured as per your changing financial needs.
• Long-term growth: ULIPs are designed for long-term investments and if managed well, can generate higher returns over the long term than traditional life insurance policies.

Overall, ULIPs provide a unique combination of insurance and investment. This makes them a popular choice for investors looking to build wealth while also getting a life cover.

Which is the Best ULIP?

Once you understand all key aspects of ULIPs, the next step is to select the one that is best for you from the available options. 

The following are some crucial factors to take into account. While choosing the best ULIP plan:

• Could you review your objectives?
• What is the life cover amount you need?
• Do you have a long-term investment horizon?
• Is your goal to maximize tax savings?

Conclusion

In conclusion, ULIPs are an attractive investment option for those looking for a mix of life insurance and investment opportunities. They provide tax benefits, flexibility, and long-term growth potential. With a range of options available, you can choose the right option to meet you financial goals and manage the risk appetite. However, it is important to note that ULIPs come with various charges that can impact returns. So, you must be aware of these charges before making a decision. For more information, on ULIPs and other investment options, visit Piramal Finance.