ULIP Insurance Plans
ULIP stands for Unit Linked Insurance Plan. If you are not familiar with what ULIP plans are, this post will address your queries.
ULIP is a life insurance product, which provides risk cover along with investment options to invest in any number of investments such as shares, bonds or mutual funds. The investment part and the protection part can be managed according to specific needs of the investor.
The investment risk in investment portfolio is borne by the policy holder. Therefore , the decision should be made keeping in mind one’s risk appetite and need of funds in future.
ULIPs are ideal for investors who seek good returns along with insurance cover. Majority of investors in ULIPs are those who wish to save income tax under Sections 80C, 80CCC and 80D. Since premiums paid for a ULIP plan are eligible for tax exemption under above sections ,ULIPs are the flavor of investors across the country.
Since banks , financial institutions and independent financial advisors are engaged in distribution of these investment products, the penetration of ULIPs is quite high.
- Flexibility : Investors can switch capital allocation between funds with varying risk-return profiles.
- Investment Period: Unlike traditional insurance plans, ULIPs offer good opportunity to make returns in relatively shorter time period (5-10 years)
- Investor Profile: Unlike traditional/specific plans, ULIPs can be purchased by anyone with an investment horizon of five to ten years.
- Risk Profile: Since ULIPs let you customize the investments according to your risk appetite, these are suitable for anyone .Therefore, risk averse investors as well as aggressive investors can invest simultaneously in the same plan
- Tax Benefit: ULIPs are tax efficient as you save tax on premium paid and the maturity proceeds are also tax free.
- The returns are not guaranteed and it is possible that your returns can be disappointing should you surrender the policy in less than three years.
- The returns are depedent on market cycles.Events like slowdown, recession spell bad news for ULIP returns
- The charges are high in initial 3-5 years, therefore the ULIP plans need time to compensate the investors in the form of appreciation in NAV.
- The ULIP plans are not easily liquid. It takes at least five years in order to surrender the plan.
How ULIPs work
In a Unit Linked Plan (ULIP), the premiums you pay are invested in the funds chosen by you after deducting allocation charges and charges including fund management, policy administration and insurance cover charges . These charges are deducted from the funds by cancelling certain units.
The value of each unit of a fund is determined by dividing the total value of the fund’s investments by the total number of units. This value is known as NAV of the fund and is published daily.
Investors are allowed to cancel the investment made in ULIP plans till 30 days from the date of receipt of policy bond . Post 30 days you cannot “Free-look” the investment. So, read the terms and conditions carefully upon receiving the Policy Bond’.
Insurance companies may deduct a part of the premium as various fees and charges before reimbursing the amount in the event of policy being free-looked.
- Fund management charges
- Switch charges
- Surrender Charges
- Mortality Charges
- Premium Allocation Charges
- Partial Withdrawal Charges
- Premium Allocation Charges
Some common ULIP Plans
- HDFC Life Progrowth Plus
- HDFC Life Youngstar
- HDFC Life Click2Invest
- ICICI Pru SmartLife
- ICIC Pru Elite Wealth
- ICICI Pru Smart Kid Solution
- SBI Life Smart privilege
- SBI Life Smart Wealth Builder
- SBI Life Smart Scholar
- Bajaj Allianz ULIP Plans
- PNB Metlife ULIP Plans
- AVIVA ULIP Plans
- Bharti AXA ULIP Plans
- Birla Sunlife ULIP Plans
- Kotak Life ULIP Plans
Hope this post addressed your questions about ULIP Plans