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What is ULIP? And Why Do People Invest In It?

What is ULIP? And Why Do People Invest In It?

ULIP Investment

ULIPs or Unit Linked Insurance Plans are one of the most lucrative investment options available in the financial market. They’re easy enough for the average investor to understand, and they provide a host of benefits to purchasers irrespective of the scale of investment. Before you decide to park your funds in ULIP, you need to understand how they work and why people choose to invest in them. Here’s a closer look at these details.

What are ULIP?

ULIP are investment options that provide the dual benefit of an insurance cover in combination with capital appreciation. When you invest in ULIPs, you’re required to pay a premium to the financial service provider. This premium is used in two different ways, so you get to enjoy a protective life cover in addition to an opportunity for corpus growth. One part of the premium goes toward funding the insurance cover, while the remaining portion of the premium paid is invested in market-linked instruments.

Depending on the proportion of your investment in the common pool, you’re allocated units. These units have net asset value (NAV) that is calculated on an everyday basis. Since these units are linked to the market, their NAV increases or decreases accordingly. To reduce your risk, you can diversify your ULIP investments, so the average NAV increases in the long run.

Why do people invest in ULIP?

The best ULIP offer several advantages to the average investor. With young investors growing increasingly aware of these benefits, ULIP are quickly becoming one of the most preferred choices of investment. Here’s why more people are choosing to invest in the best ULIP offered by financial institutions.

Dual advantage of investment and insurance

ULIPs are the only investment options that offer you the benefits of investment and insurance combined. The insurance portion of the plan offers you a protective life cover. If you outlive the term of the plan, you receive maturity benefits. On the other hand, if you do not survive the plan, your beneficiaries receive death benefits that can help them cope with any financial crises following your demise. In addition to this, the best ULIP also allow your investment to grow over the years, resulting in a sizeable corpus that you can fall back on later in life.

Flexibility of investment

Another reason people choose to invest in the best ULIP is the flexibility they offer. In most other investment options, the money you park is invested in the same vehicle throughout the tenure of investment. In ULIP, however, you have the option to switch between debt, equity, or balanced funds, depending on your risk appetite. You can choose the kind of units you want to purchase right at the start of the investment tenure. Thereafter, depending on changes in the market and variations in your risk exposure, you can transfer your money to other low-risk or high-risk funds as needed.

Tax benefits

The best ULIP also offer tax benefits to investors. Since ULIPs are essentially investment products, the premium you pay to invest in these plans is deductible as per section 80C of the Income Tax Act. You can deduct the premium paid during each financial year from your total income for that year, thereby reducing your tax liability. In addition to this, the maturity or death benefits received from the ULIP scheme are also tax-free as per section 10 (10D) of the Income Tax Act. With so many tax benefits to its credit, it’s no wonder that the ULIP scheme is being increasingly preferred by savvy investors.

Conclusion

In addition to these benefits, ULIP also help you save for the long term in a disciplined manner. Canara HSBC Oriental Bank of Commerce offers a variety of ULIP schemes for investors to choose from. Among these are options like the Invest 4G Plan, Titanium Plus Plan, the Smart Future Plan, and the Smart Goals Plan.

The Invest 4G ULIP from Canara HSBC Oriental Bank of Commerce is a particularly excellent investment option for investors. With this plan, you can choose from 7 different funds and 4 portfolio strategies. You also get to enjoy additional benefits such as wealth boosters and loyalty additions. Furthermore, the Invest 4G ULIP also allows you to switch between funds, so you can take advantage of fluctuations in the financial markets.

To pick the best ULIP for your financial goals, all you need to do is take a look at the many online schemes offered by Canara HSBC Oriental Bank of Commerce and choose the one that best aligns with your needs.

Speak to an insurance specialist now!

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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