ULIP or Unit Linked Insurance Plans are the insurance cum market linked investment plans. The ULIP plans provide the bundled benefit in one single plan i.e benefit of investment and life insurance.
Under a ULIP plan, some portion of money is kept for making insurance policy charges and rest is invested in your chosen fund.
Table of Contents
How ULIPs Work?
ULIP or Unit linked Insurance plan is a customised plan. This also means, you have to make choices while buying the plan. ULIPs enable you to be your own master. Here, you make choices, based on your beliefs. The choices are:
- Choose Premium Amount
- Premium payment option – One time/ Limited pay/ Regular Pay
- Premium Payment frequency – monthly/ quarterly/ half yearly/ yearly
- Choose your investment duration – The term you will pay money
- Choose your Fund Choices – equity fund, bond fund, Govt. security fund etc.
- How you want to take maturity proceeds – lump sum or instalments or both
Once you make the choices and buy the plan, then your money is divided in two chunks.
- A smaller chunk for Policy charges
- A bigger chunk for Investment
Now the policy charges part is gone. The balance amount is invested in the funds of your choice. Now the rest lies to your fund choices, how long you stay invested and fund manager expertise ( return generated :).
- Maturity is given at the right time. At this time you can take your appreciated money and enjoy.
- In between time you can switch from fund to fund, without any charges, exit/entry load etc.
- In case of unfortunate death of policyholder, the nominee gets fund value or assured amount from the company, whichever is higher.
Also read about some of high selling ULIP Plans
HDFC Click 2 Wealth- Review, Features & Benefits
LIC SIIP Plan Review – Is LIC ULIP Good?
Don’t Buy LIC SIIP Plan- If You Don’t Know This
LIC Pension Plus- Is It WORTH Your Money?
SBI Life – Smart Platina Plus -Guaranteed Income Or Trap
What Is Term Plan-Meaning, Risk Cover, Advantages & Details
Benefits/Advantages of ULIP
- Insurance : you get assurance of life cover with the plan. In case of an unfortunate event the family get guaranteed amount of money or premium paid.
- Investment: you get money invested across the fund of your choice.
- Fund choice: you get the fund choice one can invest as per his own risk appetite and choose the fund accordingly.
- Switch: one can switch the funds as per the market cycle and own requirements.Usually 4 switches are free in a year. There is no tax implication of switch and thus a great option one can use.
- Real time value: You can see your money growing in real time and enjoy its benefits.
- Transparency of charges & investment options: you get fully aware of where, the scheme is investing, charges etc.
- Tax Benefit: you get a tax deduction under section 80C for the premium.
- Tax free Maturity: Maturity proceeds and interest/profit earned is also tax free in nature.
- Diversifying Risk: By Choosing multiple investment funds, you can reduce investment risk .
Disadvantages of ULIPs
- High charges, high premium allocation charges, mortality charges and policy admin charges are applicable, which greatly reduce the invested amount.
- Long term investment due to market conditions and volatility of the funds return one short term investment option is not available in your ULIPs.
- Lock in period: usually there is a lock and period of 5 year during this period the investor cannot withdraw his money.
- Market Fluctuation: the money is since the money is invested in equity related instruments the return is flux keeping fluctuating with time and market cycle.
- Non guaranteed returns point two its investment in market link products The returns are not guaranteed and then Western may or may not get increased value he may also get lower than the paid amount also.
Is ULIP safe?
ULIP is a market linked product with some initial in-built charges. Therefore, returns are market linked and may vary with fund choice, market conditions and economic cycle. While investing in ULIPs you get the fund choices for equity, bonds, govt. Securities, so the returns depends on you choice of fund.
In addition, returns are usually not guaranteed. Your invested money is safe but maturity value may differ due to various factors.
You may get good, moderate or low or negative returns from the policy.
Read more about safe investments Top 5 Post Office Tax Saving Scheme
Latest Post Office Interest Rates July -Sep 2022
Monthly Income Scheme From Post Office -Invest In POMIS
How to invest in ULIPs?
You can contact an insurance advisor, buy online, visit a bank or NBFCs etc to buy ULIP plans.
Is ULIP a good investment?
An ULIP is a costly investment plan. In lieu of investment and insurance in one bundled product, the policyholder ends up paying high charges and in return, She/he may not get either good return or good insurance.
Read more about high insurance cover plan What Is Term Plan-Meaning, Risk Cover, Advantages & Details
One can expect a return in the range of 5-10 percent from the policy. But please be ready to get lower or higher returns too from the ULIP. It’s not a Guaranteed product.
Is ULIP good or Bad?
In my view, ULIP is neither good nor bad, because it keeps on oscillating between both. The returns are not guaranteed and high charges, makes it an average plan to meet your needs. So ULIP may be a costly affair to start with.
Read more about Investment Options
