How 4th Generation ULIPs are Changing Life Insurance in India

As everything in the financial market undergoes a change every second, ULIPs are no exception to the rule. Here we look at how the newly evolved ULIP plans are fast changing the face of the life insurance industry in India.

When it comes to investing your hard-earned life savings, you definitely want the best financial medium that is safe and offers the best returns to help you create a sufficient corpus for your future. However, it is equally important that the medium you choose comes at an affordable price as well which is sustainable in the long run. This is why a ULIP which initially started out as a unique investment and insurance product for the Indian customer (but was highly expensive at that) had to undergo several changes over the years.

It has now emerged as both affordable and with increased benefits. It’s only when a financial product can reform itself to suit the needs of the investor can it actually sustain in the market amid tough competition. Here we discuss how a 4th generation ULIP (as it is famously now called) has changed the face of the life insurance sector in India. Read on.

What is a ULIP Plan?

A ULIP full form stands at Unit Linked Insurance Plan. It is one of the most unique financial products in the kitty of the life insurance sector, offering dual benefits of insurance and investment to the financial investor. This is why ULIPs gained immediate popularity when they were first launched several years ago because there was no other financial product at the time to compete with them in this regard.

However, the ULIP had one major drawback back then. They were highly expensive (perhaps owing to the exclusive dual benefit they offered). This meant that the common Indian investor couldn’t quite afford them. To sustain the changing financial investment market, the ULIPs have undergone several reforms and regulatory transformations all these years to now emerge as evolved 4th generation ULIP or New Age ULIPs (NULIPs).

What has Changed in the 4th Generation ULIP?

We discussed in the above section the ULIP meaning and how it has evolved over the years to suit the customized needs of the young millennial investor. Was it just the price drop or were there any other reforms introduced in the conventional ULIP during its journey to transform into a NULIP? Let’s find out.

1. The NULIP offered greater tax benefits too. And this is what makes the new-age investor look at them as a highly preferred investment option. The NULIP offers a host of tax benefits to the young investor such as tax concessions not just in the total premium payable towards the ULIP plan but also during the benefit accumulation and withdrawal stages. Moreover, another benefit where the 4th generation ULIP scores over its competitors in the market is that it does not incur LTCG tax on the investor.
2. The NULIP has become highly affordable: The IRDAI regulations in the years 2010 and 2013, respectively, dictated that the cost of ULIPs be brought down to make them easily affordable by the common Indian investor. A part of the price-drop effect was also attributed to the competition posed by digital investment channels.How the 4th generation ULIPs scored over their earlier versions was that they reduced their additional charges (with the exception of risk cover charges), capping them to a maximum limit of 3% and 2.25%, for ULIP investment plans for 10 years and 15 years, respectively. Besides this, the fund management charges have also been reduced, capping them at 1.35%. Interestingly, the charges for premium allocation for a majority of online ULIP plans is now zero!
3. The NULIP allows flexibility to switch between funds: This is one of the best advantages that the New Age ULIP plan offers its investors – the flexibility to switch their savings between different funds in the capital market, based on their performance. This means that if the funds where they invested their earnings fail to deliver the desired results, the investor can opt for transferring their savings to another fund in the capital market that’s performing better.

Another advantage that the 4th generation ULIP offers is that it allows the investor to withdraw a partial amount of their savings to meet any unexpected financial contingency. The early ULIPs did not have such flexible features. There had been restrictions on the investor on fund-switching during the policy tenure and also on the partial withdrawal amount permissible. The 4th generation ULIP did away with these restrictions and also completely removed the charges on fund-switching. Moreover, partial withdrawal is now permissible up to 95% of the funds invested.

Best ULIP Plans in India 2022

If you’re looking for easily affordable ULIP plans to invest your funds in this year, here are some options for you:

• ICICI Prudential Signature available at a minimum premium rate of Rs. 2,500

• SBI Life eWealth Insurance available at a minimum premium rate of Rs. 2,000

• HDFC Life Click 2 Wealth available at a minimum premium rate of Rs. 1,000

• Aditya Birla Sun Life Fortune Elite Plan available at a minimum premium rate of Rs. 3,300