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Here’s What You Need to Know About a Long-Term Insurance Policy

Here’s What You Need to Know About a Long-Term Insurance Policy

While one can more accurately prepare for future expenses, it is much harder and trickier to prepare for future emergencies. Unfortunate circumstances come in many forms, and if not adequately prepared for, can leave an individual or a family under dire financial pressures. That is why a highly recommended financial suggestion is to always secure your future with a trusted, long-term life insurance policy.

That being said, the fact of the matter is that life insurance comes in many forms and via a wide range of products on the market. In order to truly determine which life insurance policy is the perfect one for your needs, it is important to know about its benefits in the long run. Overall, an ideal life insurance policy is one that apart from ample coverage, also provides ample scope for wealth creation.

This is made possible by the means of United Linked Insurance Plans, or ULIPs for short. A ULIP is an insurance product that doubles as an excellent market-linked investment instrument as well. According to your choice of ULIP, you can either pay your premiums on a monthly or annual basis. While some amount of your premium is contributed towards providing you with insurance coverage, the other part of the amount is invested in your investment fund of choice.

These dual benefits make ULIP the prime insurance product of choice for individuals who believe in investing for the long haul. Moreover, since the returns from a ULIP are market-linked, it is more prudent to invest in them for a longer period of time. Apart from this, there are a few more considerations that make ULIP a worthy long-term insurance option.

Lock-in Period

ULIP typically come with a lock-in period of 5 years, during which the policyholder is not allowed any withdrawals or payouts. This serves a very specific purpose, allowing the investment to grow at a higher rate and provide higher returns. It also helps the policyholder in inculcating a disciplined approach to investing.

Particularly, with the power of compounding, investment in the best ULIP can result in substantial returns when compared to not investing the amount at all. Over a long period of time, these returns can even help you achieve financial goals such as purchasing a home or a car. All of this with the added benefit of having a reliable life insurance cover.

Flexibility

When signing up for the long term, it is important to have an investment that can keep up with your ever-changing goals and needs. That is where the flexibility of ULIP comes in handy. In general, the best ULIP offer a variety of fund options to choose from, such as equity, debt and balanced funds. Based on your risk appetite as an investor, you can take your pick and invest accordingly with the added option of moving your money between these different funds as you see fit. As time progresses, you can change your investment strategy and your ULIP will be able to support you either way.

Moreover, ULIP also work as a long term option due to the flexibility they offer with respect to your life insurance cover. You can customise your ulip and your ideal sum assured at the start of your policy, and with some ULIPs, you even have the option of increasing your sum assured at important milestones in your life.

Tax Benefits

Apart from this, ULIP also offer a variety of tax deduction benefits. The primary of these is that the premiums contributed to a ULIP are allowed for deduction within Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. Moreover, under Section 10 (10D), the death benefit or maturity amount from a ULIP is tax-free. ULIPs also have the distinction of being the only market-linked investment tool that is exempted from Long Term Capital Gains, or LTCG taxes. With tax benefits such as these, your ULIP can greatly contribute to your long term savings.

The key to maximising the benefits of a long-term insurance policy in general, and a ULIP in particular, is to find the right, reliable insurer that can offer the best plans customised for your needs. With Canara HSBC Oriental Bank of Commerce, you can avail a variety of the best ULIP based on your financial needs and risk appetite. These include ULIPs such as the Invest 4G Plan, Titanium Plus Plan, the Smart Future Plan, and the Smart Goals Plan.

Particularly, the Invest 4G ULIP from Canara HSBC Oriental Bank of Commerce is a popular ULIP scheme among investors with options ranging from 7 different funds as well as 4 portfolio strategies. You can also make the most of several additional benefits such as wealth boosters and loyalty additions.

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Annual Income (In Lacs)

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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