In this blog, we are going to know about ULIP, whether you should invest in ULIP or not, what can be its advantages, what can be the disadvantages etc. You will get to know all the information related to this blog.
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The full form of ULIP is
U – unit
Meaning of ULIP
ULIP (Unit Linked Insurance Plan) is a product of market linked investment. Also it is an insurance policy.
So it is a mix of insurance and investment that insurance companies bring to you.
It was first launched by the Unit Trust of India (UTI).
We can say that ULIPs are Insurance + Investment products.
How does ULIP work?
When you pay any one premium of the ULIP; Then a part of it is invested for insurance coverage and a part of the premium of the policy is invested in equity or debt funds.
ULIPs have a lock-in period of 5 years. This means that normally you cannot redeem it before 5 years.
Depending on the risk appetite of the customers, the facility to invest in large, mid, small cap, debt or balance funds is available.
You can also switch it between different funds.
There are two types of time duration in ULIPs.
It means for how long you want to pay your premium.
term of premium single premium That is, you can invest in one go.
Second fixed period For example, premiums can be deposited for 5, 7 or 10 years.
The third option is that you can deposit the premium at fixed intervals like monthly, quarterly, half-yearly or yearly.
The policy term of your ULIP can be from 5 to 30 years.
It is worth noting that the longer the premium payment period, the higher the premium amount.
This happens because the insurance company is giving you more time to pay the premium.
What are the tax provisions on ULIPs?
It is an EEE (Exempt, Exempt, Exempt) Exempt, Exempt, Exempt type product.
By investing in ULIP, tax exemption can be availed under section 80C of Income Tax on annual investment of up to 1.5 lakhs.
ULIP It is also exempted from taxation under LTCG (Long Term Capital Gains).
Tax exemption is also available on the payment received on its maturity.
There are various types of charges in ULIPs. Let us now know about the charges of ULIP.
premium allocation charge
It is a part or percentage of the premium.
Policy Administration Charges
This charge is levied for the maintenance of the policy etc.
It is taken as a percentage; Or it can also be taken in flat form.
It depends on the health and age of the investor.
These charges are deducted at your unit.
fund management charge
It is a part of each NAV. This charge may vary according to each company and its different plans.
partial withdrawal charge
This charge is levied on withdrawing some part of your fund in the medium term itself.
Apart from this, there are surrender charges, which are levied if the payment is taken before the maturity period.
fund switching charge
These charges are levied on switching from one fund to another.
Is ULIP Good What It is better to invest in ULIPs
To invest in ULIPs, you need to have patience as well as a long time to invest.
If you are planning to invest in ULIPs; So make sure to think carefully whether you see that ULIP as an investment or as an insurance.
as a life protection product ULIP Nothing special.
Because the insurance on ULIPs is limited to a maximum of 15 to 20 times your annual premium.
for example- If you buy a ULIP with a security cover of Rs 1 crore, your premium will be ₹ 2 to 3 lakh.
Whereas a person of 30 years can take a term insurance of one crore with an annual premium of 10 to ₹ 15000.
ULIPs and Mutual Funds
Like mutual funds, you can invest in ULIPs by paying premiums at a fixed interval.
You can choose the premium as per your investment needs.
Like mutual funds, the rate of return in ULIPs is determined by the NAV.
ULIPs have a minimum lock-in period of 5 years; And it also includes insurance cover.
Similarly, some mutual funds like ELSS funds also have a lock-in period of 3 years.
The annual amount deposited in it up to Rs 1.5 lakh is also exempt from income tax under section 80-C of Income Tax.
Benefits of ULIPs
- These are called long term wealth creation funds.
- Investing in it for a long period of time can give a return of 10 to 12% along with security cover.
- In this, 10 times your annual premium gets Sum Assured or Jeevan Suraksha cover.
- ULIPs also give you the option to switch to different investment plans as per your requirement.
- Profits from ULIPs are tax free as per 80C and 10D of Income Tax.
- Apart from switching from one plan to another, you can also partially withdraw your investment.
- You can also increase your investment by opting for a single premium payment option.
Risk Factor about ULIP Risks of ULIP
You must have seen advertisements of insurance companies.
They say at the end that “this market is subject to risks, please read the policy document carefully before investing” so make sure to go through it thoroughly before investing in ULIPs.
The returns of your Unit Linked Insurance Plan are directly linked to the performance of the market. Therefore, it may also have to face its risk in future.
Top companies from where to invest in ULIPs
- Life Insurance Company of India (LIC)
- SBI Life
- Bharti Aksa Life
- PNB Met Life
- Canara HSBC
- HDFC Life
- Bajaj Allianz
- Kotak Mahindra Life
- Aditya Birla Sunlife
- Max Life Insurance
- ICICI Prudential
- Aviva Life Insurance
Best ULIP in 2021
Given below is a table of some Unit Linked Insurance Plans (ULIPs).
Based on their performance over the past few years, you will be able to take the right decision to invest in ULIPs.
An investor should always keep investment and insurance separate.
Many investors opt for ULIP or traditional insurance to get both insurance and investment together.
But by taking such a plan, you only get less insurance in comparison to your invested capital.
Through term insurance, you can get a protection cover of one crore in very less money.
Similarly, for investment, you can get good returns in the long run by investing in mutual funds etc.