Unit Linked Insurance Plans is a market linked product that offers the dual benefit of an insurance as well as an investment. The goal of a ULIP is to allow for wealth creation along with providing life cover to its policyholder(s). In this plan, your insurance company puts a portion of your investment towards a life insurance cover and the remaining into a fund that is based on equity or debt or both.
The dual incentives offered by unit linked insurance plans are designed to achieve twin objectives – tax benefits and capital appreciation, where your money is invested in equity. Equity funds are of various types, such as:
These funds come under low-risk category and the investment is made in bank deposits and money market instruments.
These are moderate risk funds and investment is made in government securities, corporate bonds and other low-risk income instruments.
These funds typically invest in mix of stalks and bonds.
These are funds invested in company stocks and are subjected to high and lows of the market.
ULIP tax benefits and high returns, has made it a popular investment choice in recent times. Here’s an overview of the trends seen with these plans over the years.
Current trends in ULIPS
Started in 1971, unit linked insurance plans were introduced by the Unit Trust of India (UTI). Although a big failure in the initial days due to the market regulations and lack of transparency, it was in the year of 2005 when private companies accepted ULIP as a product.
Later in 2010, SEBI banned 14 Insurance companies. In the same year, the Government of India concluded that unit linked insurance plans should now be regulated and managed by the Insurance Regulatory and Development Authority of India (IRDAI).
The lock-in-period (initial period of investment) for all ULIPs has been increased to five years against three years previously. During these five years, there will be uniform premium payment. Another change is that there would be no partial withdrawals in the initial ‘accumulation phase’ of premiums.
In India, over the last decade, there has been a significant increment in the investment in unit linked insurance plans. While in 2010, the overall amount invested was only Rs. 1.5 Lakh Crore, it rose to Rs. 3.5 Lakh Crore in 2017. This is almost three times the initial amount. This is primarily due to the increasing popularity of ULIPs in the current financial market.
Recent changes in ULIPs
Increasing the number of actuaries
An actuary is a person who makes a statistical report of all the premium and insurance risks. The IRDAI has facilitated an arrangement, asking all insurance companies to increase the number of actuaries in their company. This will add to the overall growth of the company.
Increasing the transparency
On 24th August 2017, the IRDAI issued a circular. According to it, all insurance intermediaries are required to upload the details of qualified persons and authorised verifiers on the database of Insurance Information Bureau of India (IIBI). This helps in better tracking and monitoring of the funds by IRDAI.
Introduction of Long-Term Capital Gains Tax (LTCG) which is applicable to several market instruments including Mutual Funds and Equity Linked Savings Scheme (ELSS). ULIPs have gained significant popularity as they are exempt from LTCG which makes them a low cost and more convenient investment option.
Introduced in India in the year 1971, unit linked insurance plan has seen a rather fluctuating graph when it comes to its popularity. In the past 48 years, this financial product has proven its worth and currently, tops the list as the most popular insurance plan available in India. This is primarily because of the end use of the funds. ULIPs help you in getting a better retirement plan, supports your child’s education and undoubtedly creates wealth for its investors. It is suggested as the go-to plan by the financial experts and for the right reasons.
Leading Non-Banking Financial Institutions (NBFCs) like Finserv MARKETS has ULIPs with attractive benefits and offers that you can avail. So why wait? Explore the various investment products and let us help you grow your wealth!
Get detailed insights on various unit linked insurance plans and calculate returns online only at Finserv MARKETS. To know more about how to invest in ULIPs, head to our website today!
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