Unit Linked Insurance Plans
If you are looking for an insurance cover with considerable market returns, then, you should consider unit-linked insurance policy which is commonly known as ULIPs (Unit Linked Insurance Plans). It is a type of goal-based solution having the ability to provide both protections along with investment at the same time. Here, for your better understanding, we have discussed everything related to ULIPs (Unit Linked Insurance Plans).
Types of funds under Unit Linked Insurance Plans
Equity funds: It is also known as growth funds. Under these ULIPs, the investments are primarily made in shares and stocks of a company. They provide higher returns, but they also have high risks. So, if you have a higher risk appetite, these are the funds in which you can invest in.
Bond funds: In this type of fund, investments are made in debt instruments such as Government Securities, Money Markets, Corporate Bonds, etc which are issued by governments and banks. These types of funds are medium risky and the returns can be low to medium level.
Liquidity funds: Here, you can invest your money in the short-term market instruments such as Treasury Bills and Call Money. The maturity time of these funds is minimal, that is why they are used for short-term money goals.
Balanced funds: It is a mix of both debts and equity. Under this, a part of your investment is allocated to equities and other high-risk instruments while the rest is directed towards fixed interest tools which are of low risk.
What are the benefits of ULIP?
Dual benefits
Unit-linked insurance plans let you enjoy the benefits of both i.e. insurance and investments under a single plan. There are various funds available under ULIPs, you can choose the one that best suits your risk appetite.
Higher returns
Investments in ULIPs will give you higher returns. This is because the investments are linked to the stock market.
Flexibility
Under ULIPs, you will get the flexibility to switch to a different investment option. This proves to be useful when you do not have any fixed financial goals and you want to shift from one fund to another fund.
Transparency
ULIPs offer transparency. With such plans, you do not have to worry about the hidden charges or fees. All charges such as management of funds, policy administration, etc are disclosed upfront before you when you buy it.
Partial withdrawal
Until linked plans offer death benefits, maturity benefits, and tax benefits of up to Rs 1.5 lakh under Sec 80C of the Income Tax Act, 1961.
Tax benefits
Until linked plans offer death benefits, maturity benefits and tax benefits of up to Rs 1.5 lakh under Sec 80C of the Income Tax Act, 1961.
How does a ULIP work?
Like any other insurance plan, you need to pay a premium for a unit-linked insurance plan. In such plans, the insurance company deducts an amount of your premium towards life cover and the rest is invested in several qualified funds. After which you will get returns based on the performance of funds that you have opted for. There are several investment options such as debt, equities, hybrid funds etc which you can choose for investment.
How to choose the right ULIP for you?
Investment goals: After learning everything about ULIPs and getting clarity on what your needs and affordability are, now you need to look at various plans available in the market. You should compare them on several parameters such as premium required, death and maturity benefits, fund options, fees, and fund performance before choosing one.
Research: Before choosing a ULIP plan, first you need to research and learn everything about how ULIPs works, what the premium rates, which companies offer ULIPs, what kind of funds are there and how to choose the right fund, etc. Knowing all these things will help you to make a wise decision.
Comparison: After learning everything about ULIPs and getting clarity on what your needs and affordability are, now you need to look at various plans available in the market. You should compare them on several parameters such as premium required, death and maturity benefits, fund options, fees, and fund performance before choosing one.
Risk level: The choice of funds ULIPs depends on how much risk you are willing to take with your money. You can choose between the different funds such as bond funds, equity funds, liquidity funds or balanced funds according to your convenience after evaluating the level of risk of each option.
Low fees: Also, you should check the fees charged by various policies and choose the ones which have the lowest fees. This will ensure that your policy amount is not wasted in meeting administrative requirements.
Death and maturity benefits: Always go for a policy that gives maximum value for your money. Make sure that both death and maturity benefits are equivalent. Sometimes maturity benefits you would be getting are higher than death benefits, but there is no guarantee that you will not die while the policy is active. So, you need to make sure that death benefits are also good.
ULIP eligibility criteria
The eligibility criteria for ULIPs may vary from one insurer to another. Some of the common parameters for ULIPs are:
Entry age: The minimum and maximum entry age are 18 and 50 years. It may vary from one company to another.
Ability to pay premiums: You should have the monetary ability to pay premiums as per the policy selected.
Documents required for ULIPs
- Proof of age: Driving license, Passport or Voter’s ID
- Proof of identity: PAN Card
- Proof of address: Driving license, Passport, Voter’s ID
- Proof of income: Income tax return file, latest salary slips, banks statements, etc.
