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A list of frequently asked questions related to ULIP

A list of frequently asked questions related to ULIP

8 mistakes people make while choosing a term plan

Unit linked Insurance plans offer you the benefit of life cover along with the potential of growing your savings over the long term. This makes them a convenient investment option. However, considering that most people buy life insurance separately and invest in different avenues in tune with their risk taking ability, there are various doubts you may have regarding a ULIP.

These may range from the charges associated with them, how to generate returns, the risks that they come with, surrender before policy terms, withdrawal options among many others. Let us take a look at some of the questions commonly asked by investors who are considering parking their money in a ULIP.

What makes ULIPs a dual benefit option?

A part of the premium that you pay towards your policy is used to buy life insurance cover, while the rest is invested in the funds of your choice to generate higher returns.

Can I only invest in equity funds?

No. You can invest in debt and balanced funds apart from equity funds. This gives you the freedom to invest as per the risk you are willing to take as well as to benefit from market fluctuations in order to grow your capital.

What are the expenses involved in a ULIP?

Here is a list of the various charges that you have to pay when you invest in a ULIP:

  • Premium allocation fee directed towards underwriting, medical fees etc of the insurer taking care of your life cover
  • Mortality fees involved in offering you insurance for your life
  • Fund management charges which are deducted before the NAV of the funds of a ULIP is calculated
  • Surrender charges applicable when you exit the policy before 5 years and encash the units accumulated
  • Policy administration fees for managing the ULIP

What is meant by the lock-in period of unit linked insurance plans?

This means that ULIPs cannot be redeemed within the initial 5 years, during which you need to stay invested.

When can I withdraw from a ULIP?

The facility to take out money from your policy is available only after the completion of 5 years of investment, after which you can withdraw an amount equal to or less than 20% of the fund value of your ULIP. No tax is applied on this withdrawal.

Can I reduce my exposure to equities if I am risk averse?

Yes, you can easily switch from equity funds to debt funds if you are not comfortable taking a higher risk. You can also make a switch to benefit from movements in capital markets or if you are not satisfied with the performance of a fund. Additionally, the premium redirection facility helps you to manage the money of your future premiums to funds of your choice, be it debt, equity or hybrid. This gives you adequate control of your investment in tune with your goals.

Are ULIP returns guaranteed?

With unit linked insurance plans being market-linked, they do not provide guaranteed returns. However, you can take advantage of the power of compounding to maximise your savings when you continue to stay invested in a ULIP for a long period of 10 to 15 years.

What happens if I want to exit my policy before 5 years?

A discontinuance fee is to be paid to the insurer and the fund value accumulated till the time of surrender is moved to a discontinued policy fund where it earns interest. After the completion of 5 years, the money is returned back to you. The life insurance cover becomes invalid and you also lose the opportunity of wealth creation through ULIP.

I have completed 5 years of my ULIP. Can I surrender my policy now?

Yes you can. However, it is advisable that you lengthen your investment period to say 10 or 15 years. This is because the majority of your premium amount during the first 5 years goes towards various charges to be paid to the insurer.

Now that you have some of the answers to your queries on ULIPs, would you still draw a line when you buy life insurance and tailor your investments? Consider the Invest 4G Plan from Canara HSBC Oriental Bank of Commerce Life Insurance that gives you various death benefit options ranging from whole-life option to life option with premium funding benefit so that you can be rest assured that your family’s needs are taken care of.

Not only this, you can choose from different portfolio strategies as per your risk capacity to grow your money to meet the life goals of you and your family. So, choose a ULIP today and enjoy the plethora of benefits that come with it.

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Annual Income (In Lacs)


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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