Unit Linked Insurance Plan (ULIP)

ULIP working

Once you play your premium in ULIP, after premium allocation charges the premium is allocated to different funds according to the ratio chosen by you and units are assigned. Depending on NAV (Net Asset Value) units are calculated and assigned.

After assigning of units the insurance company deducts some charges from your fund. Below are list of charges:

i. Mortality charges

ii. Policy Administration charges

iii. Fund Management charges

After knowing charges, let us now know about available funds.

ULIPs provide a range of fund options from which you can select based on your needs. This gives you the freedom to make investments in accordance with your risk appetite, investment objectives, time horizon depending on your goal, and budget.

Below are the fund options provided by unit linked insurance plans:

1. Equity funds: These are riskier investments. Your money is invested in company stocks through equity funds. Over an extended investment horizon, they may provide higher return. However, in comparison to debt and balanced funds, they can be volatile.
2. Debt funds: These funds present relatively lower risk in comparison to equity funds and provide stable returns. Debt funds invest in fixed income instruments.
3. Balanced funds: These funds are hybrid in nature as they invest in both stock and debt markets, so you can earn balanced returns. Balanced funds offer medium risk by combining equity funds and debt funds together. As the name suggests, balanced funds can help balance out the risk by compensating for the high risk of equity with the low risk of debt securities.

Benefits of ULIPs

1. Regular Savings: The key to effective long-term financial planning is the practice of consistent, disciplined saving, which is what ULIPs encourage. You can profit from wealth creation for your loved ones by paying premiums on time.
2. Protection: ULIPs provide Life Cover, to take care of your family secure in your absence.
3. Flexibility of Investment: You will have flexibility and control of your money through below options:
   1. Fund Switch – An option to move your invested premium between equity, balanced and debt funds
   2. Premium Redirection – An option to invest your future premium in a different fund of your choice
   3. Partial Withdrawal – An option that allows you to withdraw a part of your money
   4. Top-up – An option to invest additional money to your existing fund value
4. Tax Benefits: Under Section 80C of the Income Tax Act of 1961, investments in ULIPs are allowed for a deduction from taxable income of up to 1.5 lakh per year. In accordance with the terms outlined in Section 10(10D) of the Income Tax Act, the maturity proceeds of the ULIP are likewise exempt from taxation. The death benefit indicated in the ULIP policy will be paid out to the ULIP investor if he or she passes away within the term of the policy, and under Section 10(10D) of the Income Tax Act of 1961, the money received at death is tax-free. Additionally, switching between ULIP funds is tax-free.