Unit Linked Insurance Plan, commonly known as ULIP, is a life insurance-cum-investment scheme that provides market-linked investment benefits along with life insurance protection under a single policy. ULIPs are different from endowment or money back plans in that a part of the premium amount is invested in various market-linked securities including equity stocks, government bonds, debt instruments, mutual funds, etc. You can choose a combination of different investments based on your risk profile. The returns you get from ULIPs are highly dependent on the type of investment chosen. Most importantly, ULIPs let you be in control as you can choose the type of funds you wish to invest.
Unit Linked Insurance Plan or ULIP are types of insurance plans which not only offers you protection but also helps you maximise your savings over a period of time by investing a part of your premiums in a mix of debt and equity.
Unit Linked Insurance Plan is a type of product which not only provides you with insurance but also helps you maximise your savings by investing your money in various types of investment tools.
There are different types of funds which serve their own purpose. You can allocate the proportion of your savings to each of these funds as per your preference. The types of funds under ULIPs are:
|Types of funds||Nature of risk||Types of returns|
|Bond funds||Medium||Low to medium|
You can purchase a ULIP keeping in mind your long-term goals. Some of the ways a ULIP can help you in fulfilling your long-term goals are:
ULIP is a brilliant tool if you are looking to create wealth for yourself. Some of the ways in which you can create wealth for yourself are:
ULIPs are brilliant products that provide you with the best of both worlds i.e. provide both a protective cover and also allow you to maximise your savings. However, you must choose a ULIP only if you are looking for a product that offers both insurance and investment options. Also, make sure that you choose your funds wisely based on your financial capability and investment goals.
|Policy name||Minimum entry age||Maximum entry age||Minimum annual premium||Premium allocation charge||Policy administrative charge||No. of funds||No. of free switches in a year|
|SBI Life – Smart Wealth Builder||7 years||Regular and limited premium:60 Single premium: 65 years||Rs.30,000||Up to 9%||Up to Rs.60 per month||7||2|
|Reliance Nippon Life Classic Plan II||7 years||60 years||Rs.20,000||Up to 7.5%||Rs.40 per month||5||52|
|HDFC Life Click2Invest ULIP||0 years||65 years||Rs.12,000||NIL||NIL||8||4|
|ICICI Prudential Smart Kid Solution||20 years||54 years||Rs.48,000||Up to 6%||Rs.60 per month or 2.52% of annual premium||11||NA|
|PNB MetLife Smart Platinum||7 years||70 years||Rs.30,000||Up to 6%||Rs.35 to Rs.40 per month||6||4|
|Name of the plan||Entry age||Premium payable||Fund Options Available||Premium allocation charge||Fund management charge (% of fund value)||Administration charge|
|Bajaj Allianz Life Goal Assure||0 years - 60 years||Minimum:Rs.3,000 to Rs.36,000 based on the premium payment frequency||8||Nil||0.5%-1.35% p.a.||Rs.400 p.a.(inflates at 5% p.a.)|
|ICICI Pru Elite Life Super||0 years - 75 years||
||11||2%-5%||0.75%-1.35%||Rs.60 - Rs.350 p.m.|
|HDFC Life - Click 2 Invest||0 years - 65 years||
|Max Life Online Savings Plan||18 years - 60 years||
||5||Nil||0.5% to 1.25%||Nil|
|SBI eWealth||18 years - 50 years||
||4||Nil||0.5%-1.35% p.a.||Rs.45 p.m.|
ULIPs come with a 5-year lock-in period which ensures that investors stay invested for a significant amount of time and get high returns by the end of the lock-in period. Most ULIPs offered by insurers have multiple investment fund options and policyholders may choose to invest in debt, equity or a combination of both. The individual may choose any fund option offered by the insurer as per his/her risk philosophy. The investment options provided by ULIPs are similar to the options provided by mutual funds. The advantage of ULIPs over mutual funds, however, is the fact that ULIP policyholders need not pay the LTCG (Long-term Capital Gains) tax.
Here are some reasons why ULIPs make a great investment plan for you:
Unit Linked Insurance Plan (ULIP) is a type of insurance product which not only provides you protection but also offers you the option of investing your money in investment tools of your choice. This type of product is suitable for you if you wish for a product which not only provides you insurance but also allows you to invest. It is important that you properly research and compare various plans before you decide to purchase an appropriate ULIP for yourself. However, when it comes to purchasing such types of plans, it is always recommended that you buy it online rather than offline. There are certain advantages if you purchase a ULIP online rather offline. We will look at some of the advantages of purchasing ULIP online.
Hence, ULIP is a one-of-a kind insurance product for you if you want not only a protective cover but also want to invest your money via debts and equities. However, these types of products despite offering the best of both the worlds i.e. allowing you to get insurance as well as invest, they also carry a certain degree of risk. Thus, it becomes important that you properly research and compare various plans before settling down on the plan which you feel will be the most suitable for you. Hence, purchasing it online will give you a lot of clarity regarding the ULIP plans that you are interested in. You will also be able to save on a significant amount of money, but time as well, as you will need a secure internet connection and a laptop/smartphone in order to purchase a ULIP for yourself. The whole process is also safe and transparent, and hence due to these reasons, you must purchase a ULIP online.
If you wish to know how ULIPs work, check out the following pointers:
When you purchase a unit-linked insurance plan, you will be allotted certain units. Each of these allotted units has a particular net asset value (NAV), which is declared on a daily basis, usually on the insurer’s official website. The NAV usually varies from ULIP to ULIP since it is based on market volatilities and the performance of funds.
In simple terminology, the NAV refers to the overall value of a ULIP’s holdings minus the total admissible expenses, such as the operating expenses, management fees, marketing expenses, service tax, etc. Thus, the NAV is calculated by adding a ULIP’s holdings and subtracting this sum from the total value of all liabilities.
In order to arrive at the net asset value of a single unit, the NAV of the entire fund is divided by the total number of units that are present in the fund as on the valuation date. This figure is what is referred to as ULIP NAV.
In accordance with a directive issued by the Insurance Regulatory and Development Authority of India (IRDAI), the valuation of equity shares is calculated based on the closing price of the shares on the National Stock Exchange (NSE). In case the shares are not listed on the NSE, the closing price of the shares on the Bombay Stock Exchange (BSE) or any other secondary exchange will be used to compute the net asset value.
Given the number of fund options that are available, ULIPs make a great investment choice, regardless of one’s stage of life or appetite for risk.
Before you purchase a ULIP, make sure to check the number of funds that are offered by the insurer and the risk profile of each fund. You can, thus, opt for a particular type of investment fund based on your financial goals, appetite for risk, and the needs of your dependents.
The IRDAI (Insurance Regulatory and Development Authority of India) brought about many regulations in the recent past in order to make ULIPs customer-friendly. The cap on overall charges, increase in minimum life coverage, and extension of the lock-in period from 3 years to 5 years are some of the major changes. The extension of the lock-in period allows the investors to remain invested for a longer period of time and reap maximum benefits.
ULIPs are a combination of life insurance and investment. It offers financial security to the life assured’s family and high monetary returns to the investors. Majority of the life insurance policies available in the market allow switching of fund options and premium redirection. This helps the investor to transfer funds, partly or completely, from one fund type to another according to the market performance to maximise returns. ULIPs also include features such as partial withdrawals that allow the investor to borrow a certain amount of money when in need, and loyalty additions that boost investments before maturity.
It is important to know the main features and benefits of a product before buying it. The characteristics of a Unit Linked Insurance Policy are as given below:
With the introduction of the LTCG (Long Term Capital Gains) tax in the 2018 budget session, ULIPs are considered a better option to invest in if the investment amount is huge and the investment period is long.
Thus, it has been made quite clear that an individual who wishes to reap multiple benefits like those mentioned above can choose a ULIP over equities or mutual funds.
A ULIP or Unit Linked Insurance Plan is a type of life insurance product that provides customers the unique benefit of having a comprehensive life cover and the option to invest in a choice of mutual funds. While ULIPs do come with a host attractive benefits, insurers also offer loyalty additions to policyholders in an effort to encourage them to keep the policy active.
Loyalty additions, also known as premium boosters, additional allocations, extra allocations, etc., are provided by life insurance firms to increase your investment corpus and returns. Insurance providers offer loyalty additions on life insurance policies to ensure that customers don’t surrender their policy midway through the policy tenure. Thus, in most cases, loyalty additions may only be paid out towards the end of the policy tenure along with the maturity benefit or to the nominee along with the death benefit payout. Loyalty additions may also be paid out to the policyholder if the policy is surrendered, based on the insurer’s terms and conditions. Loyalty additions may start to accrue right from the beginning of the policy tenure or after the five-year lock-in period, in the case of ULIPs
Insurance providers may offer loyalty additions as a percentage of the premium amount or as a certain percentage of the fund value of the policy. For certain insurance plans, loyalty additions can also be provided as a percentage of the life cover or sum assured. One thing to keep in mind is that loyalty additions which are provided by life insurance firms usually have little to do with the performance of the funds chosen by you. Instead, this is an additional allocation provided by the insurer as a reward for keeping your policy active
Loyalty additions are usually guaranteed by the insurer and you will know exactly when they will start to accrue. The amount that will be paid as loyalty additions by the insurer will, however, vary based on several factors such as the policy tenure, the sum assured, premiums amount, premium payment term, etc.
Loyalty additions are a good way to increase the returns that one is eligible to receive from the policy. However, this shouldn’t be the sole factor that you look for when purchasing an insurance plan. As a policy buyer, you should make sure to research the various ULIPs that are offered in the market, compare premium rates and the charges levied, and familiarise yourself with the policy terms and conditions, before purchasing an insurance policy.
Before you buy a ULIP, you need to consider a lot of factors. Some of the important considerations to make before buying a ULIP are given below:
Life insurance comes in different forms. A unit-linked investment plan (ULIP) is a type of life insurance that offers both investment and insurance benefits within the same coverage. If you are wondering about how your money grows in a ULIP, you may have to take a look at the benefit illustration provided by your life insurer. The Insurance Regulatory and Development Authority of India (IRDAI) mandates every insurer to provide a benefit illustration document while selling policies to prospective customers.
In simple terms, a benefit illustration provides the summary of all costs and returns associated with an insurance policy. It will help a buyer understand how money will get invested under a specific plan. Moreover, it will also provide a view of how the fund will grow over the years and the charges that will get deducted for fund management purposes. IRDAI has allowed insurers to assume interest rates of 4% and 8% to provide these illustrations for customers. While choosing a fund, customers will get illustrations with the above-mentioned rates but the actual returns may vary based on the type of investments.
The benefit illustration of a specific ULIP will be given in a table while signing up for a policy. This table will showcase the likely benefits that can be paid to the policyholder under various circumstances. The benefits provided here will be provided on an yearly basis along with the potential costs that may get deducted from the returns.
A benefit illustration for a specific policy will have details such as death benefit, current fund value, surrender value, net yields, etc. All these values will be provided for each year to help policyholders make their decisions accordingly. While evaluating a benefit illustration, you may have to look at the following aspects before deciding on purchasing the policy:
IRDAI has made it mandatory for all insurers to provide a benefit illustration mainly because it helps policyholders make an informed decision before making a purchase. However, it is worth noting that the yields provided in the benefit illustration may not always be an actual reflection of a policy. For instance, mortality costs can affect the yields significantly if the policyholder is an older person. ULIPs also have service costs associated with them. All these must be taken into consideration while choosing a policy. A benefit illustration provides vital information on policies and offers the best way to compare plans. Considering the long list of plans available in the market, this is essential before choosing a specific plan.
The eligibility criteria for ULIPs may vary from one company to another. Some of the common parameters for ULIPs are:
ULIPs or unit-linked insurance plans not only provide policyholders a comprehensive life cover, but also serve as an effective investment tool, wherein individuals are given the option to invest in stocks and mutual funds with varying levels of risk.
A part of the premium that you pay for your unit-linked insurance plan goes towards maintaining your risk cover, while the remaining is invested in funds that you choose. Insurance companies also levy certain charges for ULIPs. Thus, it is important to be aware of the charges that are most commonly levied by insurers if you are looking to purchase a unit-linked insurance plan.
In conclusion, it is important to remember that despite the charges that are levied, ULIPs are a smart option for individuals who are looking to earn market-linked returns and increase their wealth over a period of time.
A Unit Linked Insurance Plan (ULIP) is one of the most sought after insurance plan that you can avail. It not only provides you with cover but also invests your money in various investment tools. In short, ULIP is a product that provides you not only insurance but also offers you the option to maximise your savings as well.
ULIP, as we know, invests your money in various types of funds which have their own degree of risk associated depending on the overall performance of the market and the economy. Hence, a ULIP calculator is a brilliant tool which helps you in calculating the percentage of your savings that you can allocate to each fund. There are various insurance companies which offer you the option of calculating the amount of money that you must invest in each fund and the premium you will have to pay accordingly.
A generic ULIP calculator will ask you for certain details based on which you can know the premium you will pay and the other relevant information related to your plan. When you access the premium calculator page, you will be asked to provide certain details. Some of these details include:
On putting in this information, the premium calculator will come up with an approximate amount that you will need to pay as premium. This amount should not be taken as an absolute. Premium calculators for Unit Linked Insurance Plans are not very common because the fund details are not always known and there are more variables than any other kinds of insurance policy.
Many ULIPs do not give you an option to add a rider. However, some companies do give you rider choices. The following are the most common riders that insurance companies would give you alongside a ULIP scheme:
People who belong to the middle class often prefer going for a ULIP since it not only provides cover but also offers the option of maximising one’s savings by investing their money in different investment tools.
As per the new guidelines issued by IRDAI, the fee and cost structure of a ULIP has been made more attractive for people and has compelled more investors to invest in ULIPs.
A person can also enjoy tax benefits as the maturity proceeds from a ULIP is exempted from being taxed under Section 10D of the Income Tax Act, 1961.
If you are availing a ULIP, it is recommended that you stay invested in it for few years just like you would for other investment products such as Mutual Funds or Systematic Investment Plans (SIP), so that you could substantial returns.
However, it is important to keep in mind that you may also experience highs and lows just like other investment products which pool your money in stocks in equities.
You as an investor must be smart and keep a check on how the market is performing and accordingly invest your money.
ULIPs are very much similar to Mutual Funds, and thus the process of tracking your returns is also similar. However, there are certain charges that are levied on a ULIP that you must keep in mind while you are tracking your returns. These charges can be the policy administration charges, fund management charges, mortality charges, and surrender charges that you will have to pay in case you decide to exit your policy.
There are three ways by which you can compute the returns on your ULIP over time.
These methods of computing your returns are applicable for different market instruments such as mutual funds and SIPs. However, when it comes to calculating returns for ULIP over time, it can be slightly difficult to do so due to various charges levied, allocation patterns, and benchmarks.
These methods help you in not only calculating your returns but also give you an idea of how markets are performing. You can make investments based on your risk appetite with the help of these methods and also understand how different market instruments function and accordingly invest and expect the returns that are realistic in nature.
Unit Linked Insurance Plan (ULIP) is one of the most sought-after insurance plans that you can avail for yourself. It not only provides you with a protective cover but also allows you to maximise your savings by investing your money in different types of funds. You can allocate your money for each fund as per your convenience and switch from one fund to another depending on the market performance. A ULIP carries its own degree of risks and hence the returns may vary depending on how you may have allocated the percentage of your savings for each fund and how the market has been performing. So, how can you ensure that you do get good returns with ULIPs? There are a few tips which can help you in ensuring that you get decent returns on the investments made by you.
ULIP invests your money in various investment tools which have their own degree of risks associated with it. How you allocate your savings for each fund depends on your appetite for risk, future goals, and requirements. Your main aim must be to minimise risks and maximise your savings. It is understandable that you may not be confident of managing your funds yourself and make decisions based on the market performance. This certainly does not mean that you cannot invest and see your money grow with time. The tips mentioned above may help you cut down on risk and ensure that you get decent returns on the investments made by you.
If you are looking to purchase a life insurance policy, it is likely that you would have come across various types of life insurance products such as term insurance plans, whole life plans, ULIPs, endowment plans, child plans, etc. Each of these products offer certain unique benefits and features. Thus, it is important to first understand the various life insurance products. In this article, we will look at the key differences between term insurance plans and ULIPs.
Let us look at some of the key differences between term insurance policies and ULIPs:
|Sum assured amount||Typically, lower than other insurance products||Typically, higher than other insurance products|
|Returns||Market-linked returns based on the performance of the funds||No maturity returns available|
|Pricing||Varies based on the type of investment chosen||Most affordable among life insurance products|
|Investment component||Option to invest in various funds based on one’s risk appetite||No investment component available|
|Charges||Various charges applicable including premium allocation charges, policy administration charges, fund management charges, surrender charges, etc.||No additional charges levied|
Both term insurance policies and ULIPs are popular life insurance products. However, you will have to pick a policy based on your needs and requirements. Before you purchase a policy, make sure to shop around and pick a policy that offers an adequate coverage and affordable premium rates.
Unit Linked Insurance Plan (ULIP) can be slightly different from traditional insurance plans and hence it can be normal for you get confused regarding which of them is better to avail. You must understand how a ULIP and a traditional insurance plan functions before deciding to purchase an insurance plan for yourself.
ULIP is a type of insurance product which not only provides you cover but also utilises a part of the money for investment purposes. In short, it is a product which not only provides cover but also helps in maximising your savings. There are different funds to which you can allocate your savings in different proportions as per your convenience. ULIPs do carry a certain degree of risks, but the returns may vary according to the market performance.
There are different types of traditional insurance plans which have their own purpose to serve. The types of traditional insurance plans are:
|Parameters||ULIP||Traditional insurance plans|
|Description||This type of plan offers you both protection and invest your money in different investment tools.||This type of plan only aims to provide you with a protective cover.|
|Objective||This type of plan provides both protections and maximises your savings by investing your money in different investment tools.||This type of plan only provides protective cover to you.|
|When to purchase this plan||If you not only want to be provided cover but also see your money grow, you must consider ULIPs.||If you want to be provided with a protective cover.|
|Returns||Returns may vary depending on the market performance.||Returns are fixed.|
|Flexibility||It is highly flexible in nature. You can decide on how you would like to allocate your money in which proportions for each fund.||Since no money is invested, there is no flexibility involved.|
|Security||No security involved.||These types of plans are highly secured.|
|Tax benefits||Tax benefits available under the Income Tax Act, 1961.||Tax benefits available under the Income Tax Act, 1961.|
|Ideal term||Long-term||Can be both short term and long term depending on your financial needs and future goals.|
|Switching options||You may switch from one fund to another.||This option is not available.|
|How is your money utilised||A part of your premium is utilised to provide you with cover and the rest is kept aside for investment purposes.||The premium paid by you is used to provide you cover and other expenses.|
|Lock-in period||3-5 years||The policy is generally locked until it attains maturity.|
|Withdrawal||You have the option to withdraw a certain sum of money.||The option to withdraw a certain sum of money, may or may not be available.|
Which plan between ULIP and Traditional insurance plan will be better for you will depend on your financial needs and future goals. If you are looking for a plan which gives you the best of both worlds i.e. provide insurance and also invests your money in different investment tools then it is highly recommended that you purchase a ULIP for yourself. If you may have already invested your money in different investment tools and is looking for a product which strictly provides only protective cover and secures the future of your family, then you must consider purchasing a traditional insurance plan for yourself. ULIPs are slightly risky as your money is invested in various type of investment tools and the returns depend on the overall performance of the market. If you have an appetite for risks, then ULIP is a brilliant plan for you. Otherwise, if you are looking for a product where the risks involved are less and returns fixed, a traditional insurance plan is the best product for you.
The 2018 Union Budget introduced the LTCG tax on profits exceeding Rs.1 lakh made from the sale of shares. Investors are to pay a tax equal to 10% of the profits made. Most investors, especially those who depend on dividends for income, are unhappy with the new LTCG tax regime. The implementation of the new tax regime would reduce the gains made from investing in equities. This gives ULIPs an edge over mutual funds.
Not only do ULIPs enjoy an LTCG exemption, but also enjoy benefits under section 80C and section 10 (10D) of the Income Tax Act, 1961. While the premium paid by the policyholder is exempted to a maximum cap of Rs.1.5 lakh under section 80C, the benefits received by the policyholder/nominee are tax-free under section 10 (10D).
The key differences between ULIPs and mutual funds are listed in the table below:
|Offers both insurance cover and investment option.||Offers only investment options.|
|Risk levels depend on the funds you choose.||Risk levels depend on the funds you choose.|
|Returns are variable and depend on the performance of the funds chosen. But they are generally lower than that of mutual funds because of the cost of insurance coverage.||Returns are variable and could be high or low depending on the performance of the funds.|
|Your investment amount is split between fees, insurance cover and fund growth.||All your investment is utilised only for investment.|
|There is a lock-in period of 5 years.||There is no lock-in period except for ELSS funds.|
|You can change your funds from equity to balanced to debt as per your choice. A certain number of free switches between funds are available every year.||You cannot switch from fund to fund. To change the fund type, you need to exit from one fund and buy another.|
|Additional benefits such as loyalty bonus and other kind of bonuses are available.||There are no additional monetary perks.|
|Liquidity is not very high – you can only make partial withdrawals after 5 years or surrender your policy.||Liquidity is high as you can exit from a mutual fund whenever you want by selling off all the units.|
|Several fees and charges are applicable as there are very few restrictions set by the IRDAI.||SEBI has set limits on fees and charges that can be levied on mutual funds.|
|Is a transparent product as all benefits and daily NAV are declared and explained.||Is also transparent as fund managers have to declare all costs, benefits and daily NAV.|
|Tax benefits are available under Section 80C. There is benefit in premium payment as well as in claiming benefits.||Tax benefits are available under Section 80C if the funds are in the form of ELSS. Otherwise long-term or short-term capital gains tax is applicable.|
|Can be either medium-term or long-term.||Are either short-term or medium-term.|
|Is regulated by IRDAI.||Is regulated by SEBI.|
The constant debate over whether investment in mutual funds is better or ULIPs seems to have come to an end after the introduction of the LTCG (Long-term capital gains) tax. Investors had to choose between the convenience of purchasing a ULIP that acts as a life cover and investment, or purchasing a term insurance plan for life cover and investing in mutual funds. With the introduction of the LTCG tax, investors who make profits over Rs.1 lakh a year might give it a second thought. LTCG tax at the rate of 10.4% will be levied on equity investments made through mutual funds. The tax will be applicable from the 1st of April, 2018.
Impact of LTCG on mutual funds:
Prevailing tax laws on ULIPs
Since ULIPs offer life cover, the Income Tax Act is applicable to the product. The death benefit and the maturity/surrender benefit (as long as the sum assured is 10 times the premium) are tax-free. ULIPs generally have a 5-year lock-in period. The ULIP costs are front-loaded and each of the costs is deducted differently. While the 1.35% fund management charge is deducted from the fund value itself, mortality charges and policy administration charges are deducted by unit cancellation. While the costs on mutual funds reflect on the NAV (Net asset value), ULIPs have more than one deduction type. Hence, estimating the cost of ULIPs is a lot more complex that estimating the cost of mutual funds that have costs packed under the TER (Total expense ratio).
It has been found that ULIPs are beneficial when invested for a long period of time. The longer the term, the more cost-efficient the ULIP. The cost of ULIPs had been rationalised to make them a good long-term investment when compared to mutual funds. However, the introduction of the LTCG tax has increased the cost-efficiency gap between ULIPs and mutual funds. While ULIPs are a combination of investment as well protection, they lack flexibility. If an individual who invested in a large-cap fund finds that it is not performing well, he/she will have to discontinue the ULIP. This is because many large-fund options will not be available to switch to. Hence, it is up to the investor whether he wants to invest in a ULIP or choose to purchase a term insurance plan separately and a different mutual fund plan.
In the recent years, various life insurers have eradicated certain shortcomings associated with ULIPs by carrying out certain course corrections. The high commissions associated with the investment had brought a bad name to ULIPs. It was only after the Budget brought back long-term capital gains tax that the insurance companies made important changes that would have otherwise pushed the tool into extinction.
The newly reformed ‘ULIP’ comes with various features which look to ensure that your money is invested properly and you get maximum returns for it. Insurers have done away with premium allocation charges which were otherwise the commissions paid to the distributors. There were some insurance companies who introduced ULIPs with lower premium allocation charges but at the same time increased the policy administration charges which did not help the insured at all. Today, not only have these charges have been removed, but various features such as loyalty additions, the return of mortality charges, etc have been introduced which propel customers to purchase a ULIP.
Moreover, it is easy to switch from equity to debt and it does not attract any tax either. A ULIP investor can redeem his/her investments at the end of five years even if he/she has paid his/her premiums in installments.
There are still some limitations that need to be worked on. For example, if you are investing in a mutual fund, you have the option of redeeming your investments by moving from one scheme to another because the latter is performing better. Unfortunately, the same cannot be done if you are investing in a ULIP. Similarly, if you do not pay your premiums or decide to discontinue your ULIP during the lock-in period you may have to shell out extra charges for doing so. The same won’t happen if you have invested in mutual funds through SIPs. You can stop investing in a mutual fund through SIPs at any point of time making your exit a simple and hassle-free process. If you need money on an immediate basis or are not confident of making a recurring income over a long period of time, then it is better to stay away from ULIPs.
In terms of tax benefits, Mutual Fund scores over ULIP. You may be eligible for tax benefits if you have purchased a ULIP and switching from one fund to another is also tax-free. However, you will not be eligible for any tax benefits if you surrender your plan before the lock-in period. There are no such problems you will face if you are investing in a mutual fund and you can exit from the fund at any point of time as per your convenience. Also, it is important to understand that you will be eligible for tax benefits under Section 80C only if your sum assured is 10 times your annualised premium. You can also claim tax benefits if the premiums paid by you do not exceed more than 10% of your cover amount. If you are suffering from any health condition or disability, you are eligible for tax-related benefits if premiums paid do not exceed more than 15% of your sum assured.
Hence, one can see that one should carefully consider before buying a ULIP. If you have long-term goals and have a stomach for risks then it is suitable that you buy this particular insurance plan for yourself. In order to receive tax benefits, you will have to make sure that you follow the clauses as per the Income Tax rules. Mutual Fund is suitable for you if you already have an insurance policy in place and are looking for an instrument to invest your money in. You can decide on which fund you would like to pool your money in and when you would like to exit from the fund as well. You will need to continue investing so as to enjoy various tax-related benefits as well.
Purchase a ULIP only if you want the best of both .i.e. Insurance cover and investment, otherwise it is always recommended to invest in a mutual fund.
Here are some common misconceptions people have about ULIPs:
Private insurance companies shift focus to ULIP to improve individual business
Private insurance companies are likely to shift focus to unit- linked insurance plans (ULIP) to improve their individual business.
There are various reasons behind the insurers implementing this move. Firstly, post-2010 regulations, ULIP offer better opportunities to a policyholder compared to traditional plans. The insurers find it easy catering to customers who understand the equities better and also prefer term insurance in order to be provided cover. Lastly, the surrender charges are being rationalised in traditional and par-saving plans.
Lower surrender charges and strong offering of the product has made ULIP a more preferred product as compared to traditional plans.
Close to 35% - 40% of the new business profits come from the surrendering of par-savings insurance policies. This is a huge concern among the people who run Insurance Regulatory and Development Authority (IRDA) as rationalising the surrender charges may result in the insurance companies seeing their margins take a hit, or they increasing the premium rates.
Group insurance products cater to more than half the insurance industry's business with 40% of total business coming from private bodies and the rest from LIC. Group insurance products, unlike private plans, are sold through direct channels.
Insurance is a push product and relies on distribution to grow. The cap put on surrender charges and commissions paid to distributors have forced insurance companies to look for alternate channels for the distribution of their products. It is when channels distributed by banks also called bancassurance channels came into force and gave private insurers the access to their distribution infrastructure which was cheap and cost saving for these private companies.
My friend recently told me that he has taken a loan from his insurance policy. Is it possible to take a loan from insurance? Should I repay the loan amount or will it get deducted from my policy? Are there any specific conditions for getting a loan?
Loans are provided only on endowment policies. There are no provisions for loans under ULIPs or term plans. In the case of ULIPs, you may surrender the policy after a specific time and get back the invested money. Since term insurance is pure insurance coverage, there is no loan facility available here. The premium you pay for term plans is for the insurance protection and there is no maturity benefit.
In the case of endowment plans, you may apply for a loan if required. The company will process your request and provide the benefit accordingly. You must note that the loan facility does not have any impact on the premium you pay for the policy. If you take a loan amount, you may opt to repay the money back to the insurer. If the loan amount is not repaid, it will be taken by the company from the insurance amount.
The loan amount you get will be within the surrender value of the policy. Since the surrender value is accumulated only after the completion of three years, you may take a loan only after this period.
I have an ULIP which I bought about 4 years ago. It is doing poorly in the market right now. Once the lock-in period is over, I would like to get my investment back. Is it a good idea to invest in another ULIP?
ULIPs are always unpredictable. Most people invest in it for the long term. There are chances that the fund could turn around and start performing well. With that being said, most experts believe that it is better to keep your insurance and investment separate. Assuming that you already have a term cover (if not, buy one), your insurance needs can be met that way. You can take the proceeds and invest in mutual funds, which offer more flexibility for your investment needs. If you are investing in mutual funds, there are plenty of options for you based on your risk appetite. You may also invest in other savings solutions like PPF or NPS if you wish to avoid risk. It all comes down to what you intend to achieve with the money. Explore all the options available for you and invest wisely.
I am thinking of surrendering my ULIP now. I bought this in the year 2010 and I have gained some decent returns from it. I know that the proceeds from my ULIPs are not taxed. I am wondering whether I have to declare this income in my tax returns. Please clarify.
Yes, you are correct. The maturity proceeds form ULIPs are not taxed. Since you are surrendering your ULIPs after the lock-in period of 5 years, the cost of surrendering may not be very high. The maturity proceeds are not taxed, but you need to show this income while filing your IT returns.
I am a working professional employed with a private company. I have a term plan for Rs.1 crore coverage. About three years ago, I invested in a ULIP policy for earning decent returns on my policy. However, the returns I got so far are much lower than what I expected. I could have earned a lot if I had invested in mutual funds. What can I do now? Is it a good idea to withdraw the policy right away?
As per the new guidelines, ULIPs have a mandatory lock-in period of five years. Hence, you have to wait for two more years if you wish to surrender the policy. Compared to mutual funds, ULIPs have very limited earning potential unless you have some expertise in the market. Since you already have a term plan, the ULIP will not be of much help to you in terms of insurance coverage.
Even though you haven’t generated much returns so far, it does not mean that you will not get returns in the future. In ULIPs, there is a possibility that the fund value will be affected by short-term fluctuations. Since you have two more years to complete the lock-in period, it is better to wait rather than closing the policy. If the fund value does not improve even after two more years, you can take further actions to withdraw the policy. In the meantime, you may also experiment with funds by trying other types of investments in the market. For instance, if you have invested primarily in a debt fund, you can increase equity portion after careful research.
Also, check out the performance of other ULIP funds in the market. You have two more years to decide on what to do with the fund. Explore the options carefully and take a decision that could be beneficial to you.
Some of the charges that are levied for ULIPs include the Premium Allocation Charge, Mortality Charge, Fund Management Charge, Policy Administration Charge, Partial Withdrawal Charge, Fund Switching Charge, Premium Redirection Charge, Premium Discontinuance Charge, Surrender Charge, and Service Tax. The charges that are applicable to your policy will be mentioned in the policy brochure.
ULIPs offer market-linked returns and the investment risk will have to be borne by the policyholder alone. Thus, the returns that you are eligible to earn will be based on market conditions and fund performance. Due to this, it is recommended that you track the performance of your funds on a regular basis.
Most ULIPs that are currently offered by insurance firms do not give policyholders the option to avail a loan against the policy. However, most ULIPs come with a partial withdrawal option, wherein the policyholder can make partial withdrawals from their policy after the 5-year lock-in period.
Most insurance providers offer equity funds, debt funds, and balanced funds as part of their investment fund portfolio. You can choose to purchase in any fund as per your appetite for risk.
At the completion of the policy tenure, most insurers will offer the policy fund value to the policyholder as the maturity benefit.
All life insurance policies come with a free-look period of 15 days. If you are not satisfied with the policy after purchasing it, you can choose to return it during the free-look period. In this case, the insurance provider will return the premium that you paid initially. If you want to surrender a policy after the free-look period but before the completion of 5 years, most insurance providers will move the fund value into their Discontinuance Policy Fund. The appropriate fund value will, in this case, be paid to you after the 5-year lock-in period. If you surrender your policy after the 5-year lock-in period, the fund value of your policy will be paid to you.
Risk-averse individuals can choose to invest in debt funds, which are low-risk but offer low-moderate returns.
Listed below are the various things that you should check with your insurance provider before buying a policy:
Canara HSBC Oriental Bank of Commerce Life Insurance has recently introduced a new non-participating, unit-linked insurance plan (ULIP) called the Titanium Plus Plan. This policy offers a comprehensive life cover to policyholders with flexible premium payment terms. Further, the insurer also gives policy buyers a number of portfolio management options.
One of the key benefits of this policy is that the life assured can opt to customise the life cover based on his/her changing financial needs during the policy tenure. Policyholders are also eligible to receive loyalty additions and wealth boosters. This policy can be purchased under the Married Women’s Property Act (MWPA).
Individuals from day 1 to 70 years can be enrolled under this plan. The maturity age ranges between 18 years and 80 years, subject to the maximum policy term. Premiums for this policy can be paid as a one-time amount, for a limited number of policy years, or for the entire duration of the policy term.
21 June 2018
Leading insurance company Bajaj Allianz Life Insurance Company reported an astronomical growth of 38% on business premiums for the fiscal year 2017-18 which is almost the double of what the insurance industry experienced during the same financial year.
Bajaj Allianz saw its share rise by 2.2% in FY18 as opposed to 1.9% in the previous fiscal year. The insurer also saw their business premium surge by 29% as compared to the insurance sector which witnessed an overall growth of only 11%.
Bajaj Allianz continued to maintain its stronghold in the eastern states especially Odisha as Cuttack and Bhubaneswar saw their market share jump by 12% and 39% respectively for the FY18. The insurance company has promised that they will introduce more new products and aim to reach deep into the state in order to maintain their stronghold.
23 May 2018
ICICI Prudential Life Insurance saw its shares jump 13% in the last two trading sessions after its earnings beat analysts expectations for the fiscal year 2018.
The company saw its Value of New Business (VNB) rise by 93.1% to Rs.12.86 billion for the FY18 compared to FY17 which had ended at Rs.6.66 billion.
Improvement in cost efficiency and growth in protection and savings Annualised Premium Equivalent (APE) played a stellar role in the insurance company witnessing such robust growth.
Changes in corporate tax assumption, cut in expenses and other products including ULIP delivering improved profits were some of the factors which saw the insurer’s new business margin increase from 10.1% to 16.5%.
25 April 2018
The ULIP Goal Assure Plan is a unique unit-linked insurance plan that was recently launched by Bajaj Allianz Life Insurance. This policy comes with a zero premium allocation charge and also reimburses mortality cost to the policyholder at maturity of the policy.
Upon the death of the policyholder, provided it happens during the policy tenure, the insurer will pay the sum assured, the fund value, or 105% of the total premiums, based on whichever is the highest of the three, to the nominee as the death benefit. The minimum sum assured that can be chosen is 10 times the annual premium.
Policy buyers can choose to invest in any one of the eight funds offered by the insurance provider. One of the key benefits of this policy is that the policy provides extra allocation at maturity. Further, this policy also provides refund of mortality charges at maturity. Upon choosing a higher premium, one can also become eligible to receive loyalty additions from the sixth year.
19 April 2018
IndiaFirst Life Insurance has reported a 43% growth of its individual annual premium equivalent (APE) on a year-on-year basis, with the new premium collection amounting to a sum of Rs.575 crore. The company’s premium collection over the last fiscal year amounted to Rs.403 crore. The insurer also reported a total new business APE of Rs.664 crore for the current year, in comparison to a collection of Rs.528 crore in the previous year.
For FY17-18, the insurer reported a gross collection of Rs.2,309 crore, with their new business premiums standing at Rs.1,497 crore and the renewal premium collection standing at Rs.812 crore. The company has issued more than 1.83 lakh insurance plans during the present year, in comparison to 1.26 lakh policies issued the previous year. The insurer also said that they paid claims exceeding Rs.235 crore.
17 April 2018
Insurer PNB MetLife has launched another ULIP product ‘PNB MetLife Whole Life Wealth Plan’, a comprehensive product designed to not only provide protection to the insured’s family but also safeguard their goals through an optional benefit called ‘Care Benefit’.
The plan offers a cover with limited premium payment term ranging between 8 years to 25 years. The plan also rewards their customers with ‘fund boosters’ available at the end of 10th and 15th policy year. Khalil Ahmed, Head-Product Management said that the new plan allows its customers to refine its life investment while ensuring that they are keeping their family’s future secured. Along with providing dual benefit of a life cover and investment, all the future premiums will be waived off incase the insured is diagnosed with any critical illness covered under the plan. The plan offers 11 funds of which 5 are newly added and 2 new investment strategies providing a huge range of opportunities for its customers to invest as per their capabilities.
21 March 2018
Bajaj Allianz has launched Gold Assure, a unit linked insurance plan, designed to provide life cover and investment benefits to the new age investors.
The plan comes laded with various features amongst which returns of mortality charges and guaranteed returns on life covers after attaining maturity are some of the major ones.
Bajaj Life said that there new plan will be a game changer. It said that today’s investors look for solutions which are value packed, backed by reliable investment performance and convenient and the plan has been designed to provide all these facilities to its customers.
19 March 2018
In an effort to increase the sales of unit-linked insurance plans (ULIPs) post re-introduction of the LTCG (Long-Term Capital Gains) tax on equity investments, it is now seen that insurance providers are offering innovative insurance solutions at affordable prices to customers. Given this, Max Life Insurance, a leading life insurance provider, has recently launched a ULIP called Max Life Online Savings Plan. This policy is offered in two variants.
In the first variant of the policy, the nominee is offered the insurance cover or the policy’s fund value, based on whichever is the higher of the two, as the death benefit. At maturity, the policyholder’s will receive the fund value. In the second variant of the plan, the child (nominee) will receive the death sum assured and future premiums will be waived off. At maturity of the policy, the nominee will receive the fund value. Since this is a unit-linked policy, the policy buyer can choose to invest in any one of the 5 funds offered by the insurance provider.
15 March 2018
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