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  • ULIPs - Unit Linked Insurance Plans

    Life Insurance
    • 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, known in short as ULIP, is a life insurance-cum-investment scheme that allows you to save for your future while ensuring that your family is protected against your unexpected demise. ULIPs are different from endowment or money back plans in the fact that ULIP money is invested in mutual funds, bonds and stocks. You can decide what kind of investment vehicle to put their money in. Depending on the type of investment chosen, the returns on the policy could be quite high, resulting in greater savings for your and your family’s future.

    Types of ULIP Plans:

    There are several types of ULIP plans in India. ULIPs can be classified in various ways, such as:

    • Types of ULIPs by end use of funds: This categorising is based on the purpose for which you buy a ULIP policy. The four kinds of ULIPs under this label are –
      • ULIPs for children’s education: These policies help you save for the specific purpose of coping with your child’s tuition and other related academic expenses. ULIP Child Schemes have perks such as regular payouts to meet an educational landmark in your child’s life.
      • ULIPs for wealth creation and savings: These policies focus on increasing your investment and creating a larger corpus of savings for your future.
      • ULIPs for retirement planning: These policies help you plan for your retirement years either by giving you a lump sum at retirement or through a monthly income after you stop working.
      • ULIPs for medical emergencies: These policies focus on meeting your medical requirements in the future.
    • Types of ULIPs by funds invested in: When you buy a ULIP, you get the chance to select the kind of mutual funds that you want your money invested in. There are three kinds of funds in which ULIPs are usually invested –
      • ULIPs investing in equity funds: These type of Unit Linked Insurance Policies are invested in equity funds, which are actively traded on the stock market. The risk level is very high here.
      • ULIPs investing in debt funds: When the policy invests your money in a debt fund – which consists of instruments such as government, quasi-government securities, corporate bonds, and other fixed income instruments, the risk level is very low and a growth – albeit slow – is guaranteed.
      • ULIPs investing in balanced funds: ULIPs that invest in balanced or hybrid funds, which are a mix of equity and debt funds, it falls under this category. Balanced funds are moderate in risk level and gives higher returns than debt fund-ULIPs.
    • Types of ULIPs by death benefits: This categorisation takes into account how the death benefits are disbursed. The two main subsets under this type of ULIP are:
      • ULIPs where you get the sum assured or the fund value: Some companies offer ULIPs in which the total amount that you get as death benefits is either the total sum assured or the value of the funds in which the policy is invested. The amount you receive would be the higher amount of the two options.
      • ULIPs where you get both sum assured and fund value: ULIPs offered by some companies give the nominees of the policyholder the cumulative total of both the sum assured and the fund value as death benefits. Needless to say, these funds will be more beneficial to the family.

    Best ULIP Plans in India:

    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 60 to 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.40per month 5 52
    HDFC Life Click2Invest ULIP 0 years 65 years Rs.12,000 NIL NIL 8 Unlimited
    ICICI Prudential Smart Kid Solution 20 years 54 years Rs.45,000 Up to 6% Rs.60 per month or 2.52% of annual premium 8 NA
    PNB MetLife Smart Platinum 7 years 70 years Rs.30,000 Up to 6% Rs.35 to Rs.40 per month 6 4
    • 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 non-participating policy allows you to top-up your premium payment and increase your investments. With 52 free switches, you have the freedom to change your investment pattern as per market changes. You can make a single payment or regular payments – once a year, once in 6 months or once a year. Nominees get the highest of base fund value, base sum assured and 105% of premiums paid, in addition to the highest of top-up fund value, top-up sum assured and 105% of top-up premiums paid.
    • 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:

    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% per annum)
    ICICI Pru Elite Life Super 0 years - 75 years
    • Minimum: Rs.2 lakh
    • Maximum: No limit
    9 2%-5% 0.75%-1.35% Rs.60 - Rs.350 per month
    HDFC Life - Click 2 Invest 0 years - 65 years
    • Minimum: Rs.1,000 to Rs.24,000 based on the premium payment frequency
    • Maximum: No limit
    8 NiL 1.35% p.a. Nil
    Max Life Online Savings Plan 18 years - 60 years
    • Minimum:Rs.3,000 to Rs.36,000 based on the premium payment frequency
    • Maximum: No limit
    5 Nil 0.5% to 1.25% Nil
    SBI eWealth 18 years - 50 years
    • Minimum: Rs.1,000 - Rs.10,000 based on the premium payment frequency
    • Maximum: Rs.10,000 to Rs.1 lakh based on the premium payment frequency
    4 Nil 0.5%-1.35% p.a. Rs.45 p.m.

    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.

    How do ULIPs work?

    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). You can add riders to a ULIP policy and secure your life further, but this will mean paying a slightly higher premium. However, the benefits would be higher if you add riders to a scheme.

    ULIP policies grow at a faster rate because of investment in mutual funds. The growth of the investment, however, depends on the fund you choose. If you are risk-averse you may want to go for debt funds, which are secure but give small profits. Balanced funds give moderate returns and equity funds give the highest yield of the three.

    After 5 years, you will be allowed to withdraw money from a ULIP for your urgent requirements such as making down payment for a vehicle or house, or a medical exigency. Each policy/insurer will have their own limits on how much amount can be withdrawn and how frequently you can make withdrawals. If you pass away before the policy reaches maturity, your nominee can claim death benefits, and if you outlive the policy you can claim maturity benefits which would depend on how much your fund has grown.

    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.

    ULIP Eligibility Criteria:

    Each policy will have different eligibility criteria. 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 premium calculator is a tool offered by insurance providers that will help you determine the amount you will need to pay as premium for the life insurance cover and savings that you require for your future. Premium calculators will need you to input some or all of the following details:

    • 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.

    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:

    • Sum Assured: Term insurance policies usually offer a higher coverage when compared to other life insurance products. Thus, when you purchase a term plan, you can opt for a large sum assured without having to pay a high premium. On the other hand, if you opt for a high sum assured for a ULIP, it is likely that you will be charged a high premium.
    • Returns: Term insurance policies do not offer any returns to the policyholder. However, certain term insurance plans come with a ‘Return of Premium’ feature, in which the total premiums paid will be returned to the policyholder at the end of the term. On the other hand, since ULIPs are market-linked, they offer returns based on the performance of the funds.
    • Pricing: A term insurance plan is one of the most affordable life insurance products. However, you will need to keep in mind that the premium payable for a term insurance plan is linked to the age of the policy buyer. On the other hand, the premium rate for ULIPs is likely to be higher than that of a term plan since ULIPs acquire a cash value.
    • Investment Component: When you purchase a ULIP, you will be given the option to invest in various funds as per your appetite for risk. Thus, a certain part of premium will go towards maintaining your life cover and the remaining will be invested in funds. In comparison, there is no investment component in term insurance. Thus, the entire premium that you pay goes towards your life cover.
    • Charges: In the case of unit-linked insurance plans, insurers levy certain charges such as the Premium Allocation Charge, Policy Administration Charge, Fund Management Charge, Mortality Charge, Surrender Charge, etc. On the other hand, in the case of term insurance plans, no additional charges are levied. The policyholder is only required to pay the premium as per the premium payment schedule.

    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 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:

    ULIP Mutual Fund
    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.


    • ULIPs to be preferred over Mutual Funds post LTCG tax

      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:

      • The proposed LTCG tax is expected to impact the investment options of people. The details of the tax were announced during the 2018 budget.
      • Investors who did not pay taxes on equity mutual funds earlier will have to pay a 10.4% LTCG tax on profits above Rs.1 lakh per annum.
      • The government has announced that gains made before the 31st of January, 2018 will be exempt from the new LTCG tax. This was decided keeping in mind investors who made investments before the new tax regime was announced.
      • Since the regime is said to come into effect from April 2018, the gains made during the financial year 2018-19 will qualify for the LTCG tax.
      • Equity-oriented mutual funds sold up to the 31st of March, 2018 will attract no tax while sales made after the 1st of April, 2018 will come under the new LTCG tax bracket.


      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.

    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.
    • What's Hot?

      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.

    Frequently Asked Questions about ULIP(FAQ's)

    1. What are the charges that are levied for ULIPs?

    2. 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.

    3. Do ULIPs offer guaranteed returns?

    4. 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.

    5. Can I switch the investment fund that I opted for initially at any time during the policy term?

    6. Yes, you can switch funds at any time during the policy tenure. Insurance providers generally allow you to make a few free switches every year. However, any subsequent switches may be charged.

    7. Can policyholders avail a loan against a ULIP?

    8. 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.

    9. What are the different types of funds that I can invest in?

    10. 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.

    11. How much will I receive as maturity benefit if I purchase a ULIP?

    12. At the completion of the policy tenure, most insurers will offer the policy fund value to the policyholder as the maturity benefit.

    13. Can I surrender my policy if I am not satisfied with it?

    14. 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.

    15. Are ULIPs a good choice for risk-averse individuals?

    16. Risk-averse individuals can choose to invest in debt funds, which are low-risk but offer low-moderate returns.

    17. What are the various things I should verify with my insurance provider before purchasing a ULIP?

    18. Listed below are the various things that you should check with your insurance provider before buying a policy:

      • All the charges that are levied by the insurer.
      • Benefits and payouts of the policy.
      • Premium payment options.
      • Exclusions and limitations.
      • Terms and conditions of the policy.
    19. How can I track the performance of a fund?

    20. The performance of the various funds offered by the insurer is usually listed on the insurer’s official website.

    News about ULIP

    • Canara HSBC OBC Life launches Titanium Plus Plan

      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

    • Bajaj Allianz promises more penetration in Odisha

      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’s shares surge 13% post results

      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

    • Bajaj Allianz launches ULIP Goal Assure Plan

      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 witnesses a 43% growth in APE over the last fiscal

      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

    • PNB MetLife launches new ULIP feature

      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

    • New ULIP plan launched by Bajaj Allianz

      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

    • Max Life launches online ULIP named ‘Max Life Online Savings Plan’

      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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