A Unit Linked Insurance Plan or ULIP offers the dual benefits of insurance and investment. In other words, the premium paid towards a ULIP gets divided into two parts, one towards life coverage and the other one towards investment in money market instruments. With the help of a ULIP plan, you can amass considerable wealth with the investment part while getting insurance. Still wondering why to invest in ULIP? This article will answer all your questions. But before we take a deep dive into the same, let’s first find an answer to ‘How does ULIP work?’.
A ULIP investment is divided into two parts. The first part goes into the premium to secure the life insurance cover. The second part of the investment goes into equity or debt funds to reap financial benefits.
Depending on your future financial goal, you can increase or decrease the ratio of your ULIP investments in favour of your insurance cover or into your investment portfolio. Either way, you are sure to get excellent financial benefits.
You will gain a better understanding of how ULIP plans work through an example. So, here’s one.
Let us assume that you started a ULIP plan and are paying ₹50,000 as a premium. Now, your insurance provider will deduct a premium allocation charge for this premium amount. The premium allocation charges are nothing but the amount incurred for initial expenses like commission along with other selling expenses.
In case you still haven’t found an answer to ‘Why should I invest in ULIP?’, below are 6 reasons why you should do so right away.
ULIP is the only financial tool in India that offers a dual benefit of investment, while simultaneously providing life insurance coverage via a single investment. Thus, you need not buy separate insurance and investment plans to secure your future. This saves a lot on the respective premium amounts and helps you manage your finances better.
Investments made in ULIPs are eligible for tax deductions under Section 80 C of the Income Tax Act. An investor can claim up to ₹1,50,000 every year on his ULIP investments. Similarly, the returns that you get at the time of maturity of your ULIP policy is exempted from tax under Section 10D of the Income Tax Act. Not only that, but the amount received by the nominee upon the death of the policyholder is also exempted under Section 10 (10D) of the Income Tax Act.
Read on to gain further insight on ULIP tax benefits.
ULIPs offer flexibility in terms of investment options. This flexibility is in the form of-
You can move your investment between different funds such as equity, debt or balanced funds, depending on your risk appetite. In case you want to take high-risk on your investments, you can increase the investment portion in equity funds. However, at any point, if you feel you want to decrease your risks, you can switch your investments into debt or balanced funds.
Top-up options allow you to invest more money in your existing savings.
Premium redirection offers flexibility to redirect your future premiums into different funds.
When you invest in a ULIP, the insurance coverage guarantees a fixed sum of amount to the nominee in case of the untimely demise of the policyholder during the insurance term. This fixed amount is the ‘sum assured’ and is exempted from tax deductions.
Usually, when you make any investments, you are not allowed to make partial withdrawals during the lock-in period. However, ULIP benefits will enable you to make withdrawals during the lock-in period. Nevertheless, certain fees and deductions are subtracted from the amount when you make such withdrawals during the lock-in period.
Compared to other investment options, the potential to gain maximum financial rewards is high in the case of ULIP returns. These high results can be achieved because of the flexibility offered between equity and debt funds. Similarly, with ULIPs, you become eligible for certain rewards and bonuses for ‘staying invested’. Insurance providers offer bonuses in the form of wealth boosters or loyalty additions.
You can pay ULIP premiums for a long tenor and enjoy long term benefits. If you do so, your money is invested in the market for a long period of time thus giving you higher returns. You can use this money from the long term benefits of ULIP for specific purposes like children’s education, down payment of a home loan, etc., by planning it accordingly.
Claim Settlement Ratio
The claim settlement ratio is the percentage of the claim paid out by the ULIP provider. The higher the ratio the better is the claim settlement amount on maturity of the ULIP.
Performance of Funds
ULIP investments are market-linked. Thus, the funds in which you make your investments (equity, balanced or debt) are subject to market fluctuations. Therefore, before making your investments, make sure you compare the past performance of these funds over their respective benchmarks already set in the market. Analysing the performance of the fund can also help you decide on the risk appetite of your ULIP investment.
While taking out a ULIP, you have to pay certain fees such as premium allocation charges, policy administration fees, fund management fees, mortality charges, and surrender/switch charges. Make sure you carefully consider these charges before making your investments.
Your Objective To Purchase ULIP plans
ULIP plans are beneficial when invested for the long term. Hence, it is advisable to determine your long-term goals before you start investing in ULIPs. Most people purchase ULIP for retirement or a child's education.
Premium Payment Period and Lock-In Period
You should know the premium payment period and the lock-in period of your ULIP plan. The premium payment premium is the total number of years you have to pay premiums. The Lock-in period, on the other hand, is the minimum period required for a plan to mature. In the case of ULIPs, the lock-in period is five years. It means you will have to wait for five years until the policy matures to yield its benefits.
The rewards of ULIP plans can be enjoyed over time. Generally, a ULIP has a lock-in period of 5-7 years. This is sufficient time for the money invested in equity or debt funds to multiply considerably. Hence, you should invest in ULIPs as soon as possible.
Individuals who have just started their careers can begin with a balanced fund option for lower financial risks. As and when they make financial progress in their careers, Bajaj Allianz ULIP Plans allow flexibility to shift to slightly risky equity funds.
ULIPs are also a lucrative option for people who are planning to start their families or for those who are nearing their retirement. ULIP provides umbrella coverage for family members in the long term. In case of the sudden or untimely death of a policyholder during the ULIP tenure, a ‘sum assured’ is provided to the policyholder's nominee as a form of future financial security.
Thus, whether you are planning to buy a retirement plan, child plan, or solely looking for individual investment, visit Bajaj Markets to invest in Bajaj ULIP products according to your financial goal. The Bajaj ULIP plans come with zero allocation charges and provide a chance to invest in top-rated funds across the industry.
Bajaj Markets assures 100% transparency in all its ULIP policy documents and the nature in which a customer’s funds are being used. To know more about how you can create long-term wealth with your ULIP investment, visit our ‘Insurance’ section today!
ULIP stands for Unit Linked Insurance Plan.
ULIP is a good investment option as it gives you both life insurance as well as investment benefits. You should analyse your financial goals before investing in a ULIP.
Yes, an assured sum is given to the nominee in case of the untimely demise of the policyholder.
Yes, investments done in ULIP are eligible for tax deductions under Section 80C of the Income Tax Act.
Yes, ULIP offers flexibility in the form of fund switch, various top-up options as well as premium redirection.