ULIPs - Unit Linked Insurance Plans

• Premiums as low as Rs.17/day for sum assured of Rs.1 crore*
• Claim up to Rs. 1,50,000 deduction under section 80C**
• Choose between annual and monthly premium payment options

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.

Types of ULIP Plans:

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:

• Bond funds: In this type of fund, your money will be invested in bonds like government bonds, corporate bonds, fixed income bonds etc. These type of funds are medium risky in nature and the returns can be low to medium level.
• Equity funds: These types of funds are also called growth funds. Your money is invested in equities i.e. shares and stocks of a company. Your fund manager will help you by researching the best stock in which you can invest your money. You can also make a decision on investing your money in a stock depending on the market value of a company. Based on the market value of different shares, there are various types of funds such as large cap, mid cap, and micro-cap funds in which you can invest your money as per your convenience.
• Cash funds: These types of funds invest your money in low-risk money market tools such as market funds, bank accounts, cash deposit etc. Since the risk involved is low, the returns may not be high either.
• Balanced funds: This fund is a mix of both equity and debt. A part of your money is invested in equities and other high-risk investment tools and the rest is directed towards debts and other low-risk investment tools.

ULIPs based on long-term investment

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:

• Children education: The education of your children is very important and you as a parent would like to ensure that your children get the best quality of education. Investing in a ULIP means that not only can you fund your kids’ education but also ensure that they are able to study further even if you are not around.
• Building a corpus: Investing in a ULIP means that not only are you getting a protective cover but also getting the opportunity to grow your savings over a period of time. This allows you to build a corpus and ensure that the future of your family is financially secure even if you are not around in the future.

ULIP for the creation of wealth

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:

• Non-life staged/life-staged: Your appetite for risk may reduce as you grow old with age. ULIP offers various funds which carry their own degree of risk. You can allocate your savings in these funds as per your financial capabilities and future requirements.
• Non-guaranteed/guaranteed: Investing in a ULIP means that you are eligible for various types of long-term benefits. A non-guaranteed ULIP will invest your savings in various types of investment tools depending on the degree of risk they carry. This type of ULIPs offers you the option of deciding in what proportion and at what time you would invest your savings in different funds. A guaranteed ULIP aims to provide you with a protective cover and thus the returns are low.
• Regular premium/Single premium: Your ability to pay your premium may depend upon your financial capability and hence you can decide the mode of premium payment. A single premium payment mode allows you to pay your premium in one go, while a regular premium mode allows you to pay your premium on a monthly, quarterly, half-yearly, or on a yearly basis.
• ULIPs for retirement planning: If you want a regular income get credited to your account even after your retirement, then it is highly recommended that you invest in a ULIP The money invested by you ensures that you are getting a steady income even after you have stopped working and allow you to fulfil your dreams and live a standard life.
• ULIPs for medical reasons: The medical expenses are expected to rise in future and you can never predict when you can get hit by any critical illness or an accident. Investing in a ULIP allows you to build a corpus that takes care of your medical expenses in case of an accident or you get diagnosed with any critical illness. You can partially withdraw a certain sum of money from your fund so that you can take care of your immediate medical expenses.

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.

Best ULIP Plans in India:

• SBI Life – Smart Wealth Builder: This is a non-participating policy that gives you guaranteed additions from the 10th year of policy and waives off the premium allocation charge from the 11th year onwards. It has 7 fund choices and you can make regular premium payments, or limited payments for specific number of years, or a single lump sum payment. You get the sum assured or the fund value, whichever is higher, as death benefit, and the fund value as maturity benefit.
• Reliance Nippon Life Classic Plan II: This is a non-participating policy that gives you guaranteed additions from the 10th year of policy and waives off the premium allocation charge from the 11th year onwards. It has 7 fund choices and you can make regular premium payments, or limited payments for specific number of years, or a single lump-sum payment. The sum assured or the fund value, whichever is higher, is provided as the death benefit, and the fund value is provided as the maturity benefit.
• HDFC Life Click2Invest ULIP: This is an online plan that allows you to pay premiums regularly, for limited number of years or in a single lump sum payment. This policy gives you the fund value as maturity benefit and the highest of 105% of premiums paid, fund value or sum assured as death benefit. You can switch funds among 8 different options any time throughout the year, and you have to pay only mortality and fund management charges.
• ICICI Prudential Smart Kid Solution: This is a child-centric plan which aims at growing your investment keeping your child’s educational and career milestones in mind. The policy gives wealth boosters and loyalty additions to increase your savings. You can get a lump sum maturity benefit or staggered payments as maturity benefits, while the death benefit would be the sum assured or 105% of premiums paid, whichever is greater.
• PNB MetLife Smart Platinum: This scheme gives you a choice of 6 funds and covers you till the age of 99. You can pay premiums for 5 years, 10 years or for the full policy period. The maturity benefit is equal to the total fund value, and death benefits would be the highest of base fund value, base sum assured minus partial withdrawals made, or 105% of the premiums paid.

Best Zero Cost Online ULIP Plans:

Why you should buy ULIPs?

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:

• You can make partial withdrawals on ULIPs: Unlike some mutual funds, insurance policies and long-term savings instruments, ULIPs allow you to make partial withdrawals in case of personal monetary requirements. You can start taking out money any time after 5 policy years.
• ULIPs are multipurpose: A ULIP is a two-in-one product – it offers both insurance protection and investment benefits. So instead of buying a term insurance and a mutual fund, you could buy a single product – a ULIP – to serve both the purposes.
• You can choose the risk level you want: Most Unit Linked Investment Policies offer a variety of fund choices, with a good mix of equity, debt and balanced funds. You can choose the funds you want your money to be invested in, and also change the fund choices many times a year for free. Thus, you get to decide how much risk you want to put your money in.
• ULIPs are flexible: Apart from choice of funds and option to switch between funds, you also get a choice in premium payment frequency – annual, semi-annual, quarterly or monthly – and premium payment tenure – Regular Pay, Limited Pay or Single Pay. You can choose the amount of life insurance cover you want, and the portion of premium to be invested. You can customise a policy as per your needs.
• ULIP helps you save for the future: ULIPs are one of the best means to save money for the future – be it for your child’s education, or your retirement, or simply for a rainy day. If you choose to pay premium every month, then it will inculcate a sense of discipline in your savings pattern.
• You can save tax through ULIPs: ULIPs are a tax-deductible product. You can save on premium payments under Section 80C, and on maturity or death benefits under Section 10 (10D).
• ULIPs don’t charge high fees: Some of the common fees charged on ULIPs are Premium Allocation Charge, Fund Management Charge, Policy Administration Charge and Mortality Charge. Altogether, these will not exceed 2.25% of the premium you pay, as per Insurance Regulatory Development Authority of India (IRDAI). However, of late, many insurance companies give heavy discounts and waivers on different charges, thereby making ULIPs more attractive than mutual funds.

Why you should purchase a ULIP online?

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.

• Saves time: Purchasing ULIP online means that you are saving a lot of time. All you need to do is visit the official website of the insurance company and decide upon the ULIP plan you are interested in. It takes just a few clicks and you can purchase a ULIP of your choice within minutes.
• Saves paperwork: Gone are those days when you would have to not only stand in long queues but also deal with a whole lot of paperwork as well while purchasing a life insurance policy for yourself. These days all you have to do is upload the scanned version of the required documents, pay for the policy and you will have an insurance policy in your name. Hence, purchasing ULIP online means that you are saving on a lot of paperwork and making the whole process hassle-free in nature.
• It is cheap: Purchasing ULIP online is cheaper and affordable in nature as compared to purchasing one offline. You may have to pay higher premiums offline because there might be a huge possibility of an agent being involved who are paid certain commissions by the insurance company. When an agent helps you purchase a ULIP, the insurance company charges you extra as a part of it is paid to the agent as a commission. However, purchasing ULIP online means that there is a transparency between you and the insurance company and you know exactly how your premiums are going to be utilised. Also, some plans do not charge any premium allocation cost if purchased online. You may have to pay this particular charge if you purchase a ULIP plan offline.
• Safe: Purchasing ULIP offline means that you may come across agents who may missell you insurance plans. When you purchase a ULIP online you are also doing a lot of research and comparing various plans. You are getting all the information available online and hence it becomes easier to make a decision. In case of any doubts, you can also consult a customer service agent and you will be able to get all your doubts clarified. Also, during the time of paying your premiums, the payment gateway is extremely secure and your money is paid straight to the insurance company. There are no middlemen involved and you also get a proper receipt after the payment is made.
• You can compare various plans: Purchasing ULIP offline means that you may not be able to compare plans. The agent may not be willing to share all the information regarding the product that you are interested in, and hence you may end up purchasing a plan which may not be completely suitable for you. However, before purchasing a ULIP online, you can also compare various ULIP plans online and decide for yourself regarding which plan will be the most suitable for you.

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.

How do ULIPs work?

If you wish to know how ULIPs work, check out the following pointers:

• Unit Linked Investment Plans are very similar to endowment plans – the key difference being that investment through ULIPs are made in market instruments such as debt, equity, and balanced funds.
• You need to pay a premium amount, which is your contribution to the investment and insurance.
• A part of this amount goes into investment in funds, another part goes towards your insurance payments, and a small portion is deducted as administrative charges.
• You can decide your premium payment tenure from the 3 options – regular pay (where you pay premiums till the end of the policy period), limited pay (where you pay premiums for a limited period such as 5 years, 10 years or 15 years), and single pay (where you make a single payment for the entire duration).
• ULIP policies grow at a faster rate because of investment in different types of funds. However, the risk factor is also higher if you choose equity plans.
• Most funds allow partial withdrawals after 5 years even if you have chosen a longer policy term.
• If the policyholder dies before the maturity term, the nominee can claim death benefits.

What does NAV mean in a ULIP Plan?

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.

ULIP Fund Options for Individuals Across Different Stages of Life

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.

• Individuals who are recently employed and are in their 20s usually don’t have too many commitments. Such individuals can opt for equity funds and earn high returns.
• Individuals who have several dependents not only have a high need for protection but also want to invest in funds that will help them increase their wealth over a period of time. Such individuals can opt for a ULIP with a high sum assured and invest in balanced funds. The coverage provided by the policy can also be enhanced by purchasing additional riders.
• Individuals who are nearing their retirement age and are looking for a safe investment option can opt to invest in debt funds that are low-risk but provide moderate-low returns.

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.

Features and Advantages of ULIP:

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:

• Versatility: Unit Linked Investment Plans, unlike mutual funds, serves two purposes. It not only helps you save money for your future, but also offers you a life insurance cover. This will ensure that if you meet an untimely death, your family will get a higher payout than a pure term insurance.
• Transparency: All insurance companies are mandated by the IRDAI to make the functioning of ULIPs as transparent as possible. A sales brochure of a ULIP scheme will have detailed notes on topics such as illustration of benefits and fees and charges applicable. You also get a free-look period of 15 days when you can take a policy, experience it, and return it if you don’t like it. You can also track the performance of the funds your ULIP is invested in, through the Net Asset Value (NAV) that is declared on a daily basis by the insurance company.
• Higher returns: ULIPs give higher returns than typical savings products such as fixed deposits or money back plans. This is because ULIP investments are linked to the stock market.
• Guaranteed returns: Because ULIPs are linked to the market, it also makes the product volatile. However, unlike mutual funds, insurance companies guarantee a certain sum as death benefit and a certain sum as maturity benefit, which means that even if the fund you invested in doesn’t do very well, you will still receive the amount promised to you at the outset.
• Multiple premium payment options: Premiums for ULIPs can be paid in many modes, as per your convenience and affordability. You could make payments for the whole tenure of the policy, for a limited duration of the policy, or in a single lump sum payment. Regular and limited payments can be made once a year, once in six months, once in a quarter, or every month.
• Choice of funds: ULIPs offer a choice of 2 to 8 funds – this differs from insurer to insurer and from product to product. These are a mix of equity, debt and balanced funds, which allows you to pick the risk level you want. If you are a risk-averse individual, you can choose debt funds, if you want moderate risk, you can go for a hybrid or balanced fund, and if you want to take moderate-to-high risk, you can select equity funds. You can switch your funds from one to another several times a year, and ensure a healthy gain from the investments.
• Ease of management: You don’t need to manage your own funds if you are not comfortable with the stock market – the insurance companies’ fund managers will do the job for you. But at the same time, if you are interested and knowledgeable in fund management, you are allowed to do that in some policies.
• Customisation of premium and payouts: You can decide how much premium you want to pay and customise the sum assured and premium allocation to funds accordingly. You can buy a ULIP for various purposes – from retirement planning to children’s education – and customise it as per your needs. You can also add one or more riders to your policy to increase your protection levels.
• Systematic savings: ULIPs, like endowment plans, is a structured saving instrument. It will bring financial discipline to your life as you will learn to keep aside the premium amount every month or whatever your premium payment due date is.
• Partial withdrawal: Unlike mutual funds or provident funds that have high lock-in periods, you can withdraw some part of the savings from your ULIP policy after 5 years. This will help you if you find yourself in urgent need of money at certain junctures of your life.
• Tax savings: As discussed earlier, you can save tax on both the premiums paid and the death or maturity benefits received.

Why ULIPs are better than equities?

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.

• ULIPs provide life insurance cover as well as a medium to invest in and gain a significant amount of money.
• Insurers offer various investment fund options under each ULIP. Policyholders have the freedom to choose a suitable investment fund type and switch between fund types too.
• Policyholders are entitled to tax benefits under sections 80C and 10 (10D) of the Income Tax Act, 1961.
• ULIPs allow you to make investments for specific requirements. Child Plans help save money for one’s child’s education or wedding whereas Pension Plans will prove to be beneficial post one’s retirement.

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.

Loyalty Additions in ULIPs – All you need to know

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.

What are Loyalty Additions for ULIP?

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

How are Loyalty Additions applied for ULIP?

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.

Things to Consider

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.

How to choose the right ULIP for you?

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:

• Investment goals: The first and foremost thing to be considered is what you expect from a ULIP. ULIPs can be purchased for several purposes such as child’s education and future needs, your retirement, savings, increasing your wealth, tax savings, etc. Once you are sure why you want a ULIP, you will be able to select a scheme that helps you achieve that goal.
• Research: Go online and find out everything there is to know about ULIPs. You ought to learn everything about how a ULIP works, what the premium rates are like, which companies offer ULIPs, what kind of funds are there and how to choose the right fund, etc. Only when you know everything about the product you want, would you be able to make a wise purchase.
• Comparisons: After learning everything about ULIPs and getting clarity on what your needs and affordability are, you need to look at various plans available in the market. You should compare them on certain parameters such as premium required, death and maturity benefits, fund options, fees and charges, and fund performance.
• Premium amount, payment frequency and duration of pay: ULIP schemes are available with varying premium payment options. There are regular, limited and single premium payment alternatives. Premium amount for regular pay policies would be lower than those for limited pay plans. Single premiums would be very high though it would be a one-time payment. Monthly or quarterly payments may be more affordable to an average person than semi-annual or annual payments. So consider how much you can save per month or per year and choose the premium amount, frequency and duration accordingly.
• Risk level: The choice of funds in a ULIP should depend on how much risk you want to take with your money. Debt funds are the best for risk-averse people, while equity funds work best for people who want fast growth and are okay with high risk. Balanced funds offer moderate risk and may be ideal for a fairly cautious investor.
• Low fees and charges: Check the fees charged by various policies and choose the ones with lowest fees. This will ensure that your policy amount is not wasted in meeting administrative requirements.
• Death and maturity benefits: Go for a policy that gives maximum value for your money. Ensure that both death and maturity benefits are equivalent or reasonable. Sometimes maturity benefits would be way higher than death benefits, but there is no guarantee that you would NOT die while the policy is active. So you have to ensure that death benefits are also good.

Things To Look For in a Benefit Illustration Before Buying a ULIP

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.

What is a benefit illustration?

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.

What to look for in a benefit illustration?

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:

• Maturity benefits: The potential benefits that can be received at the end of each year will be provided in the illustration. You may have to consider the death benefit at the end of each year. The maturity benefit for each year with earnings from various investments will be provided in the table. This will be helpful in figuring out how much returns you can expect from a policy.
• Net yield: This will help you figure out the impact of overall charges associated with a specific life insurance cover. The illustration will provide values for interest rates of 4% and 8%. In an example of yield calculation with 8% interest rate, if the net yield from a policy is around 6.5%, it indicates that the impact of charges is about 1.5% in that policy.
• Surrender value: Sometimes, policyholders opt to cash out their ULIP before the end of the maturity term. This is likely to come at a specific price. While checking the benefit illustration, you may have to check the surrender value to know the potential benefits that can be received if you are cancelling the policy after a specific year. Based on this information, you can make an informed decision about your ULIP. Some policies have significantly high surrender costs. Hence, this must be considered before purchasing a particular plan.

Conclusion

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.

ULIP Eligibility Criteria:

The eligibility criteria for ULIPs may vary from one company to another. Some of the common parameters for ULIPs are:

1. Entry age – Each insurer and policy will have a minimum and maximum entry age, which is the age at which you can buy the plan.
2. Maturity age – This is the age that a policyholder should be at when the ULIP period ends.
3. Premium payment ability – You should have the monetary ability to pay premiums as per the policy selected.

Key Terms used with reference to ULIPs (Glossary):

• Policy Term: The duration up to which an insurance scheme offers life cover is known as the policy term. For example, if your policy is bought at the age of 25 and covers you until you are 45 years old, then the policy term for that scheme is 20 years.
• Premium Payment Term: This is the duration for which you have to pay premiums for the policy that you have selected. The premium payment term could be for the whole policy term, for a limited tenure, or just once in case of the single pay mode.
• Premium Payment Mode: This refers to the way in which you can make premium payments towards your ULIP scheme. This could be online, through cash or cheque, ior via standing instructions or Electronic Clearing System (ECS).
• Lock-in Period: This is the duration for which you cannot withdraw the money you have invested in a ULIP.
• Partial Withdrawals: This refers to the act of taking out a portion of the money you’ve invested Unit Linked Insurance Policy after the prescribed lock-in period is over.
• Sum Assured: This stands for the amount of money that you are guaranteed to get as death benefit or maturity benefit.
• NAV: This stands for Net Asset Value. This is the daily value of one unit of each fund you have selected for your ULIP.
• Fund Value: This is the total value of the funds that your policy is invested in at a given point of time. For example if your policy is invested in 1000 units a fund with a per-unit value of Rs.418, then the fund value would be 418 x 1000 = Rs.4,18,000.
• Death Benefit: This is the amount paid to the nominee of the policyholder after the latter’s death.
• Maturity Benefit: This is the amount paid to the policyholder when the policy term is over.
• Loyalty additions: This is an amount that is added to a policy by the insurance company as a reward of staying loyal to the brand or product. This bonus amount is usually given for long-term policies.
• Free-look period: This is a 15 or 30-day period during which you can examine the policy, its benefits and disadvantages, and its terms and conditions. You can return the policy for a minimal fee within the free-look period if they are not satisfied with the scheme.
• Reduction in Yield: When the policy premium is allocated to funds and returns are calculated, it is possible that sometimes due to excessive fees and charges, there might be negative returns or a loss. RIY is the loss to the policyholder if the returns on a fund are low because of the amount of fees and charges. For example, if the actual value of your fund is Rs.5,000 but due to all the various fees and charges your returns is only Rs.4,500, then there is a reduction of Rs.500 on your yield.
• Non-negative Clawback: IRDAI has put a limit on how much RIY a fund can be subjected to. The onus of ensuring a low RIY is on the insurance company. If there is a profit when reduction in yield is subtracted from the maximum return in yield, then unit’s equivalent to that profit amount needs to be added by the insurer to the policyholders’ fund. In the end, the estimated reduction in yield should be equal to the maximum reduction in yield. This is known as non-negative clawback.
• Lapsed policy: A policy lapses or becomes inactive if you do not pay premiums within the due date. Lapsed policies can be revived on paying a late payment fee and the premium dues.

ULIP charges:

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.

• Premium Allocation Charge: The premium allocation charge is deducted from your premium amount upfront by the insurer. This charge usually includes the underwriting costs, renewal expenses, and commission charges of the agent/intermediary. Thus, this charge is usually higher during the initial policy years. The IRDAI has set a certain limit on this charge from the fifth policy year onwards.
• Premium Redirection Charge: As a policyholder and investor, you can choose to invest your entire premium into a certain fund that is offered by the insurance provider. However, if you wish to redirect your premiums into another fund option, you may be charged a certain fee for the same. Most insurance companies, however, give you the option to redirect your premium free of cost a specific number of times during the policy term.
• Premium Discontinuance Charge: In order to keep your policy in force, you will need to pay your premiums regularly as per the premium payment schedule. If you stop paying the due premiums, your funds will be transferred to the insurer’s Discontinuance Policy Fund after deducting a discontinuance charge from the policy.
• Fund Management Charge: The fund management charge is a certain fee that is levied by the insurance provider to manage funds/allocations in order to help you earn higher returns. The maximum that an insurance company can levy as the fund management charge is 1.35% of the fund value in a given year.
• Policy Administration Charge: The policy administration charge is levied by insurance providers for administration of one’s insurance policy. Insurers charge this on a monthly basis by cancelling units from the funds that you have chosen.
• Fund Switching Charge: Most insurance providers usually offer more than one fund option. Policyholders are also given the option to switch between funds based on their changing needs and market-linked volatilities. While you can choose to switch funds for free for a certain number of times during the year, any subsequent switches will be charged at a predetermined rate. Insurance providers may charge you for the same by cancelling units from your chosen funds.
• Partial Withdrawal Charge: ULIPs have a lock-in period of 5 years. After the lock-in period, policyholders are given the option to make partial withdrawals from the fund value. While certain insurance companies might offer this benefit for free, others might levy a nominal charge for the same. However, most insurance companies allow a few free withdrawals during the policy tenure, after which a fee is levied.
• Mortality Charge: The mortality charge is the cost of the life cover that is provided to you. Thus, this is the amount that is charged for the sum assured that will be paid by the insurer in case of the policyholder’s premature death. This is usually charged on a monthly basis and is deducted from the funds that you have opted for.

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.

ULIP Funds:

1. Equity: Equity funds deal with stocks of companies and have a higher rate of growth and price fluctuation. This also makes it the riskiest fund of the three kinds.
2. Debt: Debt funds deal with fixed-income products such as government securities and corporate bonds. The risk level is very low on this one, and the capital appreciation would not be very fast.
3. Balanced: Balanced funds contain a mix of debt and equity products, thereby making it a moderate risk product with a chance of modest growth.

ULIP Premium Calculator:

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:

• Your age
• Your gender
• The life insurance cover you need
• The policy you want to buy
• Policy term
• Fund details, if available

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.

ULIP Riders:

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:

• Term insurance rider: With this rider, you are putting a higher cover on your life, and the policy will be eligible for a higher death benefit payment.
• Accidental death benefit rider: This rider will offer the nominee a higher amount as death benefit if the policyholder passes away in an accident. This amount is in addition to the sum promised as death benefit for the main policy itself.
• Permanent disability benefit rider: This rider offers protection to the policyholder if they meet with an accident and become totally disabled and unable to earn for the family. The rider will ensure that you get a portion of the sum assured as a lump sum to cover the treatment. In some cases, the sum assured and bonuses would be disbursed in staggered payments so that the person would have a fixed income even if they cannot go to work because of the disability.
• Critical illness benefit rider: If the insured person is diagnosed with a severe disease such as serious multiple sclerosis, heart conditions, kidney failure, cancer, Alzheimer’s disease or paralysis, they will get a lump sum under this rider to help pay for the treatments. Some insurance companies also waive off future premiums in case of a critical illness.
• Premium waiver benefit rider: This rider can be added if you want the insurer to forgo the premium payments if the policyholder gets a critical disease or becomes disabled in an accident. You will continue receiving the benefits of the policy until maturity even if you are not paying the premiums any more.

How to Measure ULIP Returns Over Time

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.

• Point to point returns or absolute returns: You will require your current NAV and the initial NAV of your scheme in order to calculate your absolute returns.
• The process to calculate your point-to-point returns are:
• Subtract your initial NAV from the current NAV
• Divide the total by the initial NAV
• Multiply the total with 100 to get the percentage
• Formula: {[Current NAV - Initial NAV]/Initial NAV} x 100
• This method, however, can be used only during the initial phase when you purchase your ULIP as you can calculate simple returns on your initial investment.
• For example, if your initial NAV was Rs.100 and current NAV computed after a year is Rs.150, your point-to-point return is 50%.
• Simple annualised returns: You can use this method to compute the annual yield of your scheme. To calculate your simple annualised returns you will first of all will have to know your point-to-point return.
• The simple annualised return can help you know the average amount of money you earned in an investment year. You will also be able to know your returns if the annual returns are compounded.
• The method to calculate the simple annualised returns is:
• Add your absolute returns with 1
• Raise the whole to the power of (365 by the total number of days your policy has been active for), and,
• Subtract 1 from the total
• Formula: [(1 + point-to-point returns)^(365/total number of days your policy has been active)] - 1
• For example, if your point-to-point returns were 50%, the simple annualised returns for 6 months will be:
• [(1 + 0.50)^(365/182)] -1
• =[1.50^2] -1
• =2.25 - 1
• = 1.25
• Therefore, your simple annualised returns will be 125%.
• Compounded annual growth rate (CAGR): Compounded Annual Growth Rate is nothing but the growth rate from the initial to the end investment value, provided that it is assumed that the investments made by you have compounded over a period of time.
• CAGR is the mean annual growth rate which does not take into account the volatility your returns have experienced over a certain period of time.
• Formula: {[(ending value of NAV - beginning value of NAV)^(12/number of months)] - 1 per lakh invested} x 100
• For example, if you have invested a sum of Rs.2 lakh in your ULIP where your initial NAV was Rs.20 and your final NAV was Rs.40 after 2 years, your CAGR calculated will be:
• {[(40 - 20)^(12/24)] - 2} x 100
• =24.72%
• Therefore, your CAGR computed is 24.72%.

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.

Tips To Get Better Returns with ULIPs

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.

• Risk appetite: Your appetite for risks will vary depending on various factors such as your age, future goals, and financial requirements. You may tend to take more risks as you get older which should not be the case. You must not hesitate in switching from high-risk investment tools such as equity funds to low-risk investment tools like debt funds as you grow older. You do not want to be at a stage where your returns take a beating and put all your financial plans in jeopardy just because you took a risk which you could have easily avoided.
• Choosing between equity and debt funds: As a policyholder, you must know when to switch from equity funds to debt funds and vice-versa. Equity funds, as we know, are high-risk investment tools which also promise high returns. Similarly, debt funds are low-risk investment tools where on investing the returns may be low. You must know when you can switch from one fund to another depending on your financial needs, future goals, and also how the market has been performing.
• Taking advantage of semi-controlled switching option: It can be difficult to actively monitor how the funds are performing and make a decision on switching from one fund to another. ULIP offers a semi-controlled fund management option where the fund may switch automatically as per the instructions given by you. For example, you can set a date on which a fixed amount can get credited from one fund to another. You can also decide on the amount that has to be switched from one specific fund and allocated accordingly to the other funds of your choice.
• Understanding the economic situation: It is important that you make your investment-related decisions based on different economic scenarios. For example, if the equity market is becoming extremely expensive, then you can switch to a less risky fund. Various insurance funds offer an auto-trigger option where you automatically switch from one fund to another depending on the performance of the market and the behaviour of the assets in your fund.

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.

Term Insurance vs ULIPs – Which should you choose?

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.

Difference between Term Plans and ULIPs

Let us look at some of the key differences between term insurance policies and ULIPs:

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.

ULIPs vs Traditional Insurance Plans

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:

• Term insurance plan: This plan can be availed for a fixed period of time and can be called the purest form of insurance. The policy term range from 5 years to 60 years and it provides only cover. In case of your death, the nominee receives a lump-sum amount called the death benefit provided the policy is still in force.
• Whole life insurance: This type of insurance provides cover for life as the name suggests. This plan can be slightly expensive as compared to a term insurance plan since it not only provides the death benefit in case of your death but also maturity benefit if you survive the term.
• Endowment plan: This type of plan not only provides you with a protective cover but also keeps aside a certain proportion of your money as savings. This means that you will get a lump-sum amount even after your policy has attained maturity.

Differences between ULIPs and Traditional insurance plans

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.

ULIPs vs Mutual Funds:

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:

Is It Worth Investing in a Low-Cost ULIPs?

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.

Myths about Investing in ULIP Plans:

Here are some common misconceptions people have about ULIPs:

1. ULIPs are expensive: ULIPs are available as per your monetary stature. ou can choose a policy and premium as per your requirements and affordability. If you want to pay a larger premium and make higher investment and get a higher insurance cover, you can do that. And if you want to pay a lower premium, you can find a suitable scheme among the various ULIPs available in the market.
2. ULIPs are non-profitable: While it is true that there are several charges associated with Unit Linked Insurance Plans that does not mean that all your money goes in paying the fees instead of in profitable investment. IRDAI ensures that certain fees are restricted so that you can get the most out of the policy’s investment options.
3. ULIPs are mysterious: IRDAI mandates that all insurance providers should provide full disclosure and ensure transparency in the operation of ULIPs. This means that all the fees, benefits and perks, and deductions are outlined at the outset through the policy brochure. IF you read through the brochure carefully and ask all the right questions to the insurance agent, ULIPs will no longer appear mysterious to you.
4. ULIPs are risky: The risk level of your ULIP depends on the funds you choose. The choice of funds is totally up to you, so the risk level is actually in your hands. If you choose debt funds the policy will be least risky, if you select balanced funds, the risk would be low-to-moderate, and only if you choose equity funds would you have to bear medium-to-high risk.
5. ULIPs offer lower life cover: It is true that the proportion of life cover in a ULIP would be lower than a term insurance plan, but that is natural because the premium amount serves two purposes – insurance and investment – in a ULIP while in a term insurance the whole amount goes towards insurance. But you are free to choose a ULIP death benefit amount that you need for your family and you can even add riders to increase your life protection.
6. You cannot discontinue a ULIP: Just like any insurance policy, you can surrender your policy whenever you want and close the account. If you surrender before 3 or 5 years, there might be a fee applicable, but after 5 years you don’t even have to pay a surrender charge to discontinue your policy (though this may differ from insurer to insurer). You can also make partial withdrawals from the ULIP without discontinuing your policy after a lock-in period of 5 years.

FAQs on Unit Linked Insurance Plans(ULIPs)