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What Is The Premium Redirection In ULIP?

What Is The Premium Redirection In ULIP?

Unit linked investment plan

Unit linked insurance plans or ULIPs are amazing investment products from life insurance companies. These plans not only enable you to save tax every year but also provide you with highly customisable investment plans.

A ULIP plan has multiple ‘unit-linked funds’ where you can allocate your invested premium. For example, Invest 4G plan from Canara HSBC OBC Life has seven different funds for you to invest your money into. You can choose to invest your money in the following fund strategies:

  • In any single unit-linked fund
  • In a fixed ratio of multiple funds
  • Using a portfolio management strategy
Various Unit Linked Funds in ULIPs
Various Unit Linked Funds in ULIPs

Equity funds are up to 95% equity stocks and securities, and 5% liquid assets and cash. Thus, carry the highest investment risk.

Debt funds are up to 95% long term debt securities, like bonds, Gilts and corporate debt, while 5% is liquid assets or cash. Thus, have lower risk, and offer steadier returns than equities.

Balanced funds have a dynamic allocation between long term debt and equity securities. Equity allocation in a balanced fund can range anywhere from 60% to 90% depending on market condition.

Since the asset ratio keeps on changing in these funds, the risk-return profile of the fund is also dynamic. However, for long-term investors, the profile should be medium-risk.

Liquid funds invest mostly into cash securities such as T-bills, commercial papers, money markets and ultra-short-term bonds (less than a year maturity). Liquid funds carry the least investment risk due to their asset profile.

These funds are best when you want to preserve the value of your investment in the short run. For example, as you approach the goal or in the final years right before maturity.

What is Premium Redirection?

Premium redirection is when you want to change how your upcoming premium should be allocated to different funds.

For example, you chose to direct 100% of your investment premium to an equity fund in the ULIP plan. After a few years, you want the premium to be split between an equity and a debt fund in 50:50 ratio.

This transaction is counted as a premium redirection in ULIP. With Invest 4G plan you can redirect your premium free of cost at least once during the policy year.

Effects of Premium Redirection on ULIP?

Premium redirection can impact your portfolio’s future allocation and risk profile. However, depending on the features you have been using, there could be different impacts.

For example, Invest 4G plan offers four automated portfolio management strategies. If you are using one of these strategies to manage your portfolio, premium redirection stops the automatic portfolio management.

Portfolio Management Strategies vs Premium Redirection

Invest 4G plan offers the following four portfolio management strategies:

  • Systematic transfer
  • Return protection
  • Auto fund rebalancing
  • Safety switch option

Except for the safety switch option, the rest of the strategies work throughout the life of the policy. Safety switch option, even if you opt at the beginning of the policy, works only in the last four policy years.

When you redirect the premium in the middle of the policy period, whichever portfolio management strategy is active will stop to operate.

For example, you are investing Rs. 1 lakh a year in a 15-year ULIP plan. You chose the auto fund rebalancing option to manage your portfolio at the time of starting the policy.

In the fifth policy year (after paying the fifth year premium), you submit a request to redirect your future premiums in the fourth month.

The policy will implement your request upon the receipt of the next annual premium; i.e. the sixth premium on the policy. So, from the sixth premium payment, the auto fund rebalancing strategy which rebalanced your portfolio every three months will stop.

In case you had opted for a monthly premium payment, the change would be effective from the fifth month in the fifth policy year itself.

When to Redirect Your Premiums?

In the normal course of life, you may not need to redirect premiums, especially if you are using one of the portfolio management strategies. However, insurance is a long term commitment and situations may change over time.

The only legitimate scenarios when you may have to intervene and change your usual allocation is when you:

  • Had been investing heavily in equity but now expect to withdraw the money soon
  • Had been investing in debt funds but markets are skewed and you see an opportunity you cannot miss

Whichever scenario applies to you, always remember the reason for starting this investment. If it was to meet a particular goal, that is what your primary focus should be. If it was to gather wealth, perhaps one or two interventions wouldn’t harm.

But do keep in mind that proven strategies work better in the long run than occasional interventions.

Speak to an insurance specialist now!


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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