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How does a ULIP Work?

dateKnowledge Centre Team dateNovember 02, 2022 views104 Views
How does ULIP work

ULIPs are one of the best investment plans for safeguarding important financial goals such as a child’s higher education or marriage goals. You can buy various life insurance plans as per your life stage and financial needs. These plans not only help you build financial safety net but also help you achieve your financial goals. Unit Linked Insurance Plans or ULIPs in India are one of these versatile life insurance plans as they offer an avenue for investment along with providing insurance.

Knowing how a ULIP works will enable you to benefit the most from this investment plus life insurance plan.

What is ULIP?

ULIP is a life insurance plan, which has the option of investing a portion of your premiums in different funds while putting a portion of the premium for life cover. The premium you invest is allocated to equity or debt funds in the form of units. ULIPs in India offer many unique features, which set them apart from other investments.

Pros and Cons of Unit Linked Insurance Plans

Listed below are some features of a Unit Linked Insurance Plan:

  • Invest in a mix of equity, debt and hybrid funds.
  • Switch between funds during the policy tenure as per your investment preference.
  • Use automatic fund rebalancing strategies to manage portfolio allocation based on market movement
  • Bonus additions for long-term investors
  • Premium protection option to safeguard the maturity value of the investments in case the policyholder passes away before the maturity of the plan.
  • Plans like Canara HSBC Life Insurance Invest 4G offers you to have a life cover till you turn 99.
  • Generally, the plan has a lock-in period of 5 years.
  • Partial withdrawals are available after the lock-in period.
  • Investments are eligible for deduction under section 80C.
  • Partial withdrawals and maturity value are both tax-free from ULIP.

How does a ULIP Work?

It is a type of insurance plan that offers the benefit of insurance and investment in a single policy. A death benefit is paid to the beneficiaries in case the policyholder passes away. The death benefit is the sum earned by equity or debt funds during the policy period. The returns you will get in a ULIP are not guaranteed as they are market-linked. Hence, the returns you will get depend on the market performance of the funds you have chosen to invest in.

Once the money is invested in the funds, the entire corpus is divided into “units”, which have a face value. The value of each of the unit is called the Net Asset Value (NAV). Daily NAV provides the value of units based on fund and market performance, and ultimately the value of your investments.

The policyholder can choose the premium payment frequency as per their financial potentiality. Also, ULIPs allow partial withdrawal benefit. That means the policyholder can withdraw from their corpus at different life stages after the lock-in period is over.

What does “Renewal of ULIP” Mean?

When you buy a ULIP, you will have to pay premiums as per the frequency chosen by you at the inception of the policy. Suppose say, you had chosen a monthly frequency of paying the premiums and the policy term is 20 years. That means you have to pay the insurance premium for 20 years every month. This payment of insurance premium keeps on renewing the ULIP.

If you do not pay the premiums as and how agreed, your policy will lapse, and the benefits will cease.

Reasons to Renew a ULIP

Renewing any life insurance policy has numerous benefits. Along with getting life insurance coverage for a longer duration, the policyholder is entitled to receive other associated benefits of the policy.

Mentioned below are a few reasons to renew a ULIP:

1. Helps you Achieve your Financial Goals

With a ULIP, it is easier to plan your finances as generally, it offers multiple withdrawal options. With multiple withdrawal option, a policyholder can withdraw funds from the corpus during the major events of life such as for their child’s education.

2. Enjoy Tax Benefits

The premium you pay towards a ULIP is deducted from your taxable income every year. Under Section 80C of the Income Tax Act, a maximum of Rs. 1.5 lakhs per annum can be saved in tax.

Know more about the tax benefits for ULIPs.

ULIPs by Canara HSBC Life Insurance

Canara HSBC Life Insurance offers various ULIPs that you can choose for your saving and investment needs.

1. Invest 4G

This ULIP can be bought and managed online and it offers life cover up to 99 years of age. There are 8 fund options the policyholder can choose to invest in. One of the unique features of this plan is premium funding benefit. With this option, if something happens to the policyholder during the policy term, future premiums are waived off.

  • Return of mortality charges option
  • Automated portfolio strategies
  • Bonuses under wealth booster and loyalty additions

Invest 4G

Know more about Invest 4G.

2. Titanium Plus Plan

It is an investment cum protection plan, which is highly customizable. With Titanium Plus, you can tailor the plan to meet your changing goals. Along with a life cover, it offers partial withdrawal option to help you meet contingencies.

  • Multiple portfolio management options
  • Flexibility of paying premium – single, limited, or regular
  • Tax benefits as per Income Tax Act

In the year 2020-21, ULIPs registered a growth of 9.58% with increase in premium as per the Annual Reporta 2020-21 by IRDAI. ULIPs offer a perfect combination of insurance and investment to support important life goals. You can utilise the time to grow your funds optimally while staying under the life cover umbrella.

FAQs Related to How ULIPs Work

The return you will get in a ULIP depends on the market performance of the funds you have chosen to invest in. However, keeping the market conditions at bay, let us consider the below example:

Monthly Investment Amount: Rs. 10,000
Investment Period: 20 Years
Expected Rate of Return: 8% per annum
Total Investment in 20 Years: Rs. 24 Lakhs
Total Return after 20 Years: Rs. 59.3 Lakhs

You can cancel/surrender the ULIP after the lock-in period of 5 years. All you have to do is inform your life insurer that you wish to surrender the ULIP, and you will be offered the surrender value of the policy at that time.

In simple words, mortality charge is the sum assured minus the fund value. Every insurer levies a mortality charge for the insurance coverage that will be provided by them if the policyholder passes away during the policy term.

ULIPs in India also offer a life cover. Life cover ensures financial protection of the goal and family in the case of your early demise. Investing in a ULIP allows you to put your money in equity and debt funds at the same time and in your preferred ratio of allocation. You can also change this allocation later or use automated strategies to manage it based on market conditions.

Yes, you can withdraw a part of your fund value from a ULIP after five years of investment. However, you cannot withdraw entirely from the investment unless you had invested only for five years.



Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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