What is ULIP?
ULIP’s full form is Unit Linked Insurance Plan. As you choose a ULIP plan, you will have a dual benefit, which is insurance as well as investment. ULIP investments come with high returns. As you invest in a ULIP, the money is divided into two parts; life coverage and investment toward money market instruments. Considering your future financial goals, you choose the ratio of your ULIP insurance cover or ULIP investment. Whatever ratio you choose; you are going to get financial benefits.
7 Reasons Why To Invest in ULIPs
If you are still wondering, ‘why should I invest in ULIPs?’, here are seven reasons for you.
1. Sum assured
As you choose to invest in ULIPs, you do not have to be bothered about the financial security of your family in case of your untimely death. This means the nominee of the policy gets a fixed sum of money in case of the death of the policyholder.
2. Dual benefits
ULIP is like no other financial tool in India that offers dual benefits, which include investment benefits and insurance coverage. This means you do not need to invest your money and buy an insurance policy separately.
3. Tax exemptions
Under Section 80C of the Income Tax Act, the investments that you make for ULIPs are tax exempted. Each year, you will be able to claim up to INR 1,50,000 on the ULIP investments. Likewise, the returns you receive during the maturity of the ULIP are exempted from tax under Section 10D of the Income Tax Act. If the policyholder passes away, then the nominee receives the amount, which is exempted under Section 10 (10D) of the Income Tax Act.
4. Higher returns potential
The returns on ULIPs are more than the other investment options. The high returns are possible only because of the flexibility that is offered between debt funds and equity.
5. Withdrawal facility during the lock-in period
In most cases, as you invest, you get a lock-in period during which you cannot withdraw the funds. However, with ULIPs you will not have to deal with such situations. You can make withdrawals if you invest in ULIPs even during the lock-in period. You need to be aware of the fact that certain deductions may happen in one such case.
6. Flexible investment options
When it comes to investment options, ULIPs offer flexibility. The flexibility can be in the form of premium redirection, fund switch, or top-up options.
7. Long-term growth benefits
By paying premiums for ULIPs for several years, you will be able to enjoy long-term benefits. By doing so, you can invest your money in the market for a longer time, which is likely to bring you higher returns.
Types of ULIPs
Comparison of ULIP with other investment options under 80C
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| Taxation |
| Gains are taxable; however, it depends on the underlying asset |
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| Gains more than INR 1 Lakh in any fiscal year are taxable under LTCG at 10% |
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| 80C and returns from policy upon maturity are exempted under Section 10 (10D) |
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80C and maturity amount exempted from taxation |
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| Highest as compared to the other two |
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Risk-free since it is backed by the government |
| Less risky as compared to ULIPs |
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| Equity, debt, and balanced |
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Fixed income-oriented |
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The minimum five charges of ULIPs are:
- Premium allocation charge
- Surrender charge
- Switching charge
- Mortality charge
- Policy administration charge.
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One-time account opening charge, which costs INR 100. |
| The expense ratio is in the range of 1.05 and 2.25%. There are only a few plans that come with an expense ratio that is more than 2.25% and may even go up to 3% or even more. |
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Things to consider while buying ULIPs
As you plan to invest your money in ULIPs, here are a few things that you must consider.
As ULIPs are affected by market fluctuations, their performance is linked to market trends. The best way to evaluate the fund performance is by comparing the market benchmarks with the past performance of funds.
- The Claim Settlement Ratio (CSR) is the next most important thing to be paid attention to while taking a ULIP. As the higher CSR indicates a higher percentage of successful claim payouts by the provider.
- Every ULIP plan has a certain lock-in period and a premium payment period. Calculated in years, these periods play an important part in determining the right ULIP plan for you as it indicates the number of years that you have to make payments and the total maturity period.
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