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When Is The Right Time To Invest In ULIPs

When Is The Right Time To Invest In ULIPs

Any investment journey must start with the basic premise of what one's goal is. Financial planning involves taking stock of one's risk profile, investment horizon, and financial goals. Your financial goals could include everything from buying your dream home to securing the best possible education for your children. After weighing these factors, the next step would be to consider which product to invest in. One such investment option is a Unit Linked Insurance Plan or ULIP.

When you opt for a ULIP plan, you get the dual benefits of both insurance and investment, which is why it has turned out to be a feasible option for many investors. You get the benefits of investing in a mutual fund, while also getting insurance cover. When you invest in a ULIP, the insurance firm invests part of the money into shares or bonds, and the remaining is used to provide insurance cover. You can also make changes to your portfolio, switching between debt and equity. This flexibility is another advantage of investing in ULIPs.

ULIP - A popular choice for the young and not-so-young alike

ULIPs are a popular option among millennials who may have started thinking seriously about investments. They may be looking at specific goals like higher education for their children or a dream home. Millennials, who are part of the experience economy, value experiences like travel and would prefer to save up for a big international trip. ULIPs offer them that option because of the lock-in period, the sense of discipline and flexibility in terms of switching between funds for greater returns.

Accident and Accident Disability Benefit Rider

An Accident and Accident Disability Benefit (ADDB) rider offers an extra cover in the event of disability because of an accident. Some insurers offer it for a temporary disability as well. Some even offer waiver of premium as the policyholder might not have a proper income due to disability and paying premiums becomes difficult. If this benefit is not available, you can even go for a separate waiver of premium rider.

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So, what exactly is a ‘good’ time to invest in a ULIP plan?

Like with mutual fund investments, any time is a good time to invest in a unit-linked insurance plan. ULIPs help tide over market volatility, so you can invest in them when the markets are down or when they are on the upswing. The earlier you start, the better it is, as you will be able to make use of the power of compounding. Compounding is all about reinvesting your income constantly so that your wealth grows. The longer the timeframe over which you invest, the better position you will be in to reap the benefits.

A ULIP plan should be used for long-term investment so ideally, you would need to start early and stay invested over the long-term. ULIPs have a lock-in period of five years, so they encourage focus and discipline in your investment journey.

A good time to invest in ULIPs is when you have a steady income and don't have too many commitments, and work towards your goals, whatever they may be. You can even alter your premium allocation annually, and don't have to stick to the same amount each year you are invested in. Based on your risk profile, you could choose from a variety of funds with varying exposures to equity. If you seek higher returns, you may need to choose a fund with higher exposure to equity. Also, if you are a salaried professional, and a mid-level executive at that, you can benefit from the tax-saving options for ULIP premiums and maturity amount under Section 80 C and Section 10D of the IT Act.

Investors planning for their retirement fund may also opt for a ULIP plan. One of the benefits includes sum assured or fund value, whichever is higher in the unfortunate event of the policy holder's death, thereby ensuring financial security for the family. As the goal is reaching completion, you could switch to a safer or low-risk investment in place of the equity-heavy option at the beginning or middle of the policy term.

You can consider Canara HSBC Oriental Bank of Commerce Life Insurance's Invest 4G Plan that offers the option of choosing from seven different funds and four portfolio strategies. Besides, it comes with benefits like partial withdrawal in case you need to meet some urgent financial commitments.

Summing up

To conclude, whether you are a new investor in the early stages of your working life or you are planning a retirement fund apart from insurance cover, ULIP is a good option for you. There is no particularly ‘good’ time to start a ULIP. The time is now and the earlier you start the greater your chances are of fulfilling your financial goals. Just remember that any investment decision you make needs to be aligned with your risk profile and your expectations rather than market conditions. A ULIP helps you tide over weak market conditions as you can rebalance your asset allocation and can also fetch you considerable returns over the long-term.

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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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