What is ULIP?

Full form of ULIP is Unit Linked Insurance Plan. A ULIP is a life insurance policy that provides the dual benefits of investment to achieve your long-term financial goals and a life cover to financially secure your family in case of an eventuality. The premium you pay towards a ULIP plan goes into two parts. One portion of your premium goes to your life cover, and the remaining portion is invested in market-linked instruments of your choice. You can invest in equity, debt or a combination of both funds according to your life goals and risk appetite. Let us understand in detail what is a ULIP plan and how it works

Meaning of ULIP Plan

Unit Linked insurance Plan or ULIP is a life insurance policy that offers you security of a life insurance and potential of investment returns. Depending on the proportion of your investment in the fund, 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.

How does ULIPs Work?

Just like every life insurance product, you are required to pay a small amount, known as premiums to keep your policy running. In ULIPs such as Canara HSBC Life Insurance Invest 4G, up to 100 per cent of your premium is allotted towards your investment.

The premium you pay is allocated to different funds according to the ratio chosen by you.

After your premium is allocated to your chosen funds, units are assigned as per your contribution. Units are calculated based on NAV (Net Asset Value).

After units are assigned, the insurance provider deducts some charges from your fund. The various types of charges are:

a) Mortality charges

b) Policy administration charges

c) Fund management charges

d) Fund switch charges

Some charges are deducted monthly while some charges are deducted quarterly

After these charges, the next thing that can come into your mind is how your fund is managed.

Click here to use ULIP Calculator

In ULIPs your fund is managed by highly qualified and abled fund managers. Invest 4G offers you 4 dynamic fund management strategies.

1. Fund Strategies

These strategies have a pre-determined way of working so that you do not have to get much involved.

a) Systematic Transfer Option
b) Return Protector Option (RPO)
c) Auto Funds Rebalancing (AFR)
d) Safety Switch Option (SSO)

Safety switch option facility can opt only in the last 4 years of the policy. While the other 3 strategies can be used anytime.

2. Partial Withdrawal

In ULIPs there is a lock-in period of 5 years. After 5 years you can start to withdraw from your policy.

Benefits of Investing in ULIPs

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 buy the best ULIP offered by financial institutions.

1. 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.

2. 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.

3. 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 is being increasingly preferred by savvy investors.

4. Choose Investment Option

ULIPs are very flexible and thus provide you with full freedom to choose between the different options to invest your money.

You can invest either in equity funds, debt funds, or even in a mix of both according to your preference and risk-taking abilities. The fund switching option in ULIPs also allows you to move your money between two funds during the policy.

5. Achieve Life Goals

You work hard in your life to achieve your and your family’s goals. To achieve a life goal, proper investment needs to be done.

ULIPs offer you the opportunity to invest in the market. This gives you a chance to create large wealth which can be used for your child’s higher education, marriage, or even your retirement. It also covers your life so that your family can still achieve their goals even if you are not present.

6. High Liquidity

In most of the investment options, you are given very little liquidity as the funds are available only at maturity.

But ULIPs on the other hand have a partial withdrawal facility. After the lock-in period of 5 years, you can start to withdraw from your retirement corpus. This becomes very helpful when you need quick cash.

Who Should Buy a ULIP?

ULIP is one of the best investment options that are available in the market. Though everyone who is above the age of 18 and wants to invest in ULIP can do so, if you fall in the following categories, you should consider buying a ULIP.

a) If you are looking for a long-term investment

ULIPs generally have a long-term horizon. It has a lock-in period of 5 years during which you cannot withdraw your money. This keeps your money untouched and allows it time to grow. So if you have long-term goals to achieve, you can consider ULIP.

b) If you want to manage your investments

ULIPs provide you with full flexibility and transparency in your investments. You know where and how much your money is invested.

You can change the allocation of your money to different funds according to the market and risk-ability. You can also set a fixed ratio of the funds to be invested. For example, 50% of your money is in equity funds and the remaining is in debt funds.

c) Invest as per your changing risk appetite

You are not likely to have the same risk appetite throughout your policy. At some points, you would like to take risks, while at some points you would like to play it safe.

ULIPs provide you flexibility in changing your fund allocation according to your risk appetite. There are various choices of funds with different risks that you can choose from. If you want to take risks you can go for equity funds. Debt funds on the other hand offer low-risk and safeguard your money.

Are ULIPs Good Investment?

ULIPs pose as a very reliable investment option that can help you create huge wealth for yourself. Not only this, it offers protection to your family members with its life insurance component. Here is why it is a good investment option.

1. Long-Term Asset

As discussed, ULIPs are best for you if you have a long-term investment horizon. The ULIP has a lock-in period of 5 years. During this, you cannot make withdrawals. This allows the money to grow and helps you in building savings habits.

2. Life Cover

You can invest in ULIPs for long, but what happens to your family if you die unexpectedly? ULIP takes care of this as it also covers your life. If you die during the policy, your family will receive the sum assured as a death benefit. This will help them to carry on with their lives and achieve their goals.

3. Flexibility

ULIP gives you full flexibility as well as transparency. Under this plan, you can choose the funds you want to invest in, you can alter the ratio in which the funds will be allotted. It also gives you flexibility regarding the premium payment mode.

The value of an investment and in which funds your money is invested is fully known to you

4. Tax Benefits

ULIPs, help you save your taxes as well. The amount you pay towards your premium for ULIPs is eligible for deductions of up to Rs 1.5 lakhs in tax under section 80C of the Income Tax Act 1961.

The maturity benefit, that you will receive as well as the death benefit that your family receives, can also be exempt from tax u/s 10(10) D.

How to Choose the Best ULIP?

Being a popular investment, many insurance providers offer a Unit Link Investment Plan. Each has its own set of features and benefits. Thus, choosing a ULIP can be quite a task. Thus, you should consider the following things so that you can buy a plan that suits you the best.

1. Purpose of Buying a ULIP

You need to think about why you are investing in ULIP. You may have some goals in mind to achieve with the investment. The goal you want to achieve should be clear to you.

The goal of ensuring higher education of children may require you to take more risks and achieve high growth. On the other hand, creating a corpus for retirement will need you to be safer.

ULIP allows you to invest in different funds according to your preference and risk appetite.

2. Choose the Optimum Coverage

ULIP, apart from investing, also includes a life insurance component. Your family receives a death benefit if you die during the policy term.

Assess your family needs and future costs to choose the appropriate life cover. This would help make your family financially secure in your absence.

3. Premium Funding Benefit

The best of ULIPs have this feature included. This feature ensures that your policy does not stop after you die and keeps on running as intended. A policy that has this feature will take care of all the premiums that remain to be paid after your death. The policy is continued till maturity. This feature is most beneficial when planning for goals such as a child’s education.

4. Policy Charges

ULIPs associate themselves with a host of charges. These can be in the form of premium allocation charges, fund management charges, etc.

Get information about all these charges before you buy your plan. Look for the policy which has the least number of charges involved.

In plans such as Canara HSBC Life Insurance Company’s Invest 4G, there are no Premium Allocation and Policy Administration Charges.

5. Fund Switches Allowed

This is a facility that allows you to shift between the funds you have invested in during the policy. There is usually a limit set on the number of switches you can do for free.

Which Investor Class are ULIPs Most Suited for?

ULIPs are versatile investments suitable for almost every class of investor capable of investing a minimum of Rs 2000 a month. However, ULIP have features that make this instrument more useful for investors in a specific spectrum of class:

a) You know what a ULIP is: It allows you to invest actively in different asset classes and enjoy tax-free growth

b) You understand the risk-return relationship: Risk and return go hand in hand. However, you can ensure stable returns by managing your investment risk. With ULIPs you can do that automatically

c) You want portfolio transparency: ULIPs have a very transparent investment profile. You can explore to find where your money is going anytime during the policy term.

d) You want to invest for the long-term but have the liquidity at the same time: ULIP allow partial withdrawals after the five year lock-in period.

e) You need to Invest for a large yet important financial goal: ULIP not only offer aggressive growth to your savings, but you also have the option to protect your goal.

Life Cover + Premium Protection

ULIP have a default life cover available to your family like any other life insurance plan.

However, you can also choose to protect the ultimate goal using the premium protection option.

With this feature, the insurer will not only pay the sum assured to your family upon your demise but also fulfil your remaining premiums.

f) You want to have a single plan for your retirement pension goal: ULIPs like Invest 4G from Canara HSBC Life Insurance offer a century option. This option allows you to hold your ULIP until the age of 100. So, you can build your corpus till retirement and then draw a pension out of it afterwards.

Fund Options Under ULIPs

Insurance companies offer you many fund options to invest in. These can be broadly classified into these categories

1. Equity Funds

Equity funds are those funds that invest your money in stocks. The stocks that will be allotted to you are based on the NAV. Net Asset Value or NAV is the price of a single unit in a fund. Since the stocks are concerned with the stock market, the returns are prone to market fluctuations. This makes them risky, but highly rewarding as well.

2. Debt Funds

Debt funds invest in low-risk securities such as government bonds, debentures, etc. Since backed mostly by the government, these carry lower risks than equity. The returns from these funds are lower and stable.

3. Hybrid Funds

This combines both equity and debt funds. Thus, in hybrid funds, you can get higher growth from the equity component as well as keep the risk low due to the presence of the debt component.

4. Liquid Funds

Liquid funds invest in ultra short term securities maturing within a few months at max. This allows them to generate lower but very stable returns on investment. Thus, these funds are some of the safest to invest your money in.

How is ULIP Structured?

A ULIP is a variant of life insurance that also provides you with investment options. The investment component of ULIPs is similar to how mutual funds work.

The premium that you pay goes towards the fund you want to invest in and life cover as well. ULIP provides you flexibility in choosing your premium payment term and mode.

You can pay your premiums-

a) Monthly
b) Quarterly
c) Annually

In plans such as Invest 4G, up to 100% of your premium is allotted towards investment.

Working of ULIP Fund

1. A ULIP combines the investment of many investors to create a pool of money. This pool is then invested into different funds. ‘Units’ are allotted to you based on the amount you have invested.

2. You can either invest in a single fund or multiple funds as well according to your preference.

3. This fund is managed by qualified and experienced fund managers. They decide where the funds will be invested in.

4. If the fund performs well and the market is bullish, you can get higher returns.

5. If you feel dissatisfied with the performance of your fund, you can switch to another investment as well.

6 Frequently Asked Questions before you Buy the Best ULIP Online

1. What should You Keep in Mind While Investing in ULIP?

Before you invest in a ULIP, make sure you go through the following things

i. The goal you want to achieve with ULIP
ii. Charges that are levied in ULIP
iii. Fund options offered to you
iv. Portfolio management strategies offered
v. Bonuses and other benefits
vi. Tax-Benefits
vii. Policy exclusions, terms, and conditions

2. How much of the premium paid is used to purchase units in ULIPs?

The amount of premium that will go to the purchase of units varies from insurer to insurer. The various charges that come with ULIPs such as premium allocation charges, administration charges are deducted from the premium.

After the charges are deducted, a part of the premium goes towards life insurance as well. However, this is a very small percentage of the premium. The remaining amount is used to purchase units.

3. Can I seek a refund of premiums if I'm not satisfied with the ULIP, after purchasing it?

To provide users time to get to know the policy they have purchased, insurance company’s give the customers a ‘free-look period’. During this period, you have the option to cancel your policy without penalties involved. This period is usually 15 days and is given to you so that you can be sure that you have selected the right policy.

Within this period if you find that you are not satisfied, you can cancel your policy. The premium paid and the charges will be paid back to you. However, the expenses incurred by the policy such as stamp charges cost of the medicine will not be returned.

4. What is a ULIP NAV?

Net Asset Value, commonly known as NAV is the value that is determined by deducting the value of liabilities and payables from the total value of all the assets held by the fund. When divided by the number of total outstanding units, allocated to the investors in the fund, this net asset value (NAV) becomes the Unit NAV.

Trends in Unit NAV of the fund helps you to assess the performance of the fund. Units are allocated based on the premium paid and the ongoing Unit NAV.

5. When should I invest in ULIPs?

There is no single best time in which you can invest in ULIP. If you are starting to plan for a long-term goal you have to achieve, then investment in ULIP can be a good idea.

ULIP provides you with a chance to invest in the market and grow your money. This can be used to achieve goals of retirement or child’s marriage, education, etc. At the same time, it ensures that your family stays protected even after you are gone by covering for your life.

6. How to calculate fund value in ULIP?

When you purchase a ULIP, you are required to choose funds in which you will invest. Based on the premium, units are assigned to you. The total value of all the units assigned to you is the ‘Fund Value’.

The fund value is calculated by multiplying the Net Asset Value (NAV) of an asset with the number of units held.

FV = NAV X NO. OF UNITS

In addition to these benefits, ULIP also help you save for the long term in a disciplined manner. You can choose Invest 4G, Titanium Plus Plan, Smart Future Plan, and Smart Goals Plan to meet your financial goals.

Invest 4G from Canara HSBC Life Insurance is a particularly excellent investment option for investors. With this plan, you can choose from 8 different funds and 4 portfolio strategies. You also get to enjoy additional benefits such as wealth boosters and loyalty additions. Furthermore, Invest 4G also allows you to switch between funds, so you can take advantage of fluctuations in the financial markets.