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What is a ULIP and is it a good form of investment?

dateKnowledge Centre Team dateJanuary 21, 2021 views157 Views
What is a ULIP and is it a good form of investment?

Once a person starts their family and settles on a job or business, they have secured their present. They are now confident that they can fulfil their family's needs while making sure that they are financially independent and sufficient. The next step will be to secure your and your family's future. One can never know what might happen to them in the future. From accidents to economic fall-outs, several possibilities can leave one in a state of financial despair.

One needs to ensure that their children are well-educated and have the funds to achieve the educational heights they dream of. Finally, after ensuring that one has saved enough money for the future, they need to make financially smart decisions and invest in plans that give them returns on their money.

It may sound a lot for someone who is just starting their life with their family. However, various banks and life insurance providers give you a straightforward option to help you achieve all these financial milestones through a single plan.

What is a ULIP Plan?

Unit-linked Insurance Plans (ULIP) works as an accumulation of insurance and investment. They protect your family's future and provide interest in your money for wealth creation over time.

In a ULIP investment, a part of your premium is separated for insurance while the other part is invested in the market. A professional investor will carry out the investment corpus and get you various fund options while choosing a ULIP. These options provide you with the choice of debt and equity funds.

You can select the choice of debts and equity funds as per the financial goals of a person. If you want a secure future, then you can choose to have higher insurance. Though, if your goal is to create wealth through investment, you can choose equity funds.

When you invest your funds for a length of time, such as ten years or longer, you can accumulate wealth. No matter if you are a risk-taker or a conservative investor, the ULIP investment plan consists of options that can accommodate all kinds of features.

You can opt to pay the premium for a ULIP investment monthly, yearly, or in lump-sum.

Features of a ULIP Investment Plan

The following features make ULIP Investment unique from other options offered by insurance companies. These key features are customizable as per the needs of the policy-holder.

Funds

The most important feature that makes ULIP investment different from other options is the various kinds of funds you can choose from for your investment planning. At Canara HSBC Oriental Bank of Commerce Life Insurance, you get the following options for funds.

  • Debt Funds: For the people who are low-risk oriented, debt funds can be the perfect option. In debt funds, a lesser fraction of your premium will be invested in the market, decreasing the risk. Although, it also decreases the number of returns that one can get from the investment.
  • Equity Funds: In equity funds, market volatility risk is high, and the investment is made in the equity stock market. Through equity funds, you will have a higher chance of getting higher returns.
  • Balanced Funds: This option provides you with a balance between equity and debt funds. You can opt for higher returns with minimal risk possible.

Life Cover

ULIP investment is, by definition, a life insurance plan. The life cover that is assured and signed at the beginning of the plan is guaranteed to be payable in case of demise of the policy-holder.

Here are some of the life cover features that one should know about before they sign up for a ULIP investment plan.

  • Charges: When you pay the insurance company's premium, it will include various charges, including premium allocation charges, fund management charges, mortality charges, and others.
  • Switching: You may decide to opt for equity funds initially and then may want to switch to debt or balanced funds. Through a ULIP investment plan, you get the freedom to switch between the different kinds of funds.
  • Top-Up Premiums: You can choose to make an additional investment in the market by paying a top-up premium above the fixed premium. The benefits you receive from the investment are exempted from tax deductions under Section 80C of the Income Tax Act, 1961.
  • Partial Withdrawal: Just like you can make an additional investment, you can withdraw the returns partially during your insurance plan's tenure. After the plan has crossed a certain level of the lock-in period, you are free to withdraw a definite sum of returns to address any urgent financial need.

Why invest in a ULIP Investment Plan?

Now that you have understood the properties of a ULIP investment, the next step is to find your reason behind picking the plan. Here are the benefits that you can avail yourself of from a ULIP.

  • Long-term benefits: The one thing that most people forget while investing in the market is patience. Investment is a long term game. One needs to make sure that they do not make any hasty decisions. The lock-in period that comes with the terms of a ULIP ensures that you are investing long term. Long term investments equal substantial benefits, whether you pick debt or equity funds.
  • Flexibility: You can mould the ULIP as per your needs. Whether you want to take risks or not, how much premium you want to pay, the regularity of premium payment, etc. gives you the freedom to make sure that the plan fulfils all your financial needs. You also get the option to switch the funds during the term of the ULIP.
  • Tax Benefits: The returns and benefits you receive from the ULIP are eligible for tax benefits as covered under Article 80C of the Income Tax Act, 1961.
  • Insurance: You accumulate wealth during the term of the ULIP and secure your future with the insurance provided under the plan. The cover depends upon the amount of premium that you choose to pay.

Charges of ULIP Investment

The following points explain the ULIP charges. These charges are different for different insurance companies. One should know these charges before they sign up for the plan. Make sure that you take them under consideration while calculating your return benefits.

  • Fund Management Charges: A professional investor manages your investments. In a ULIP investment, the fund management charges are included to pay the investor for their services. If you have chosen equity funds, then the fund management charges will be higher than debt funds.
  • Mortality Charges: Each month, some of the units are cancelled to cover the mortality charges. The mortality charges are payable as the ULIP. These charges depend upon the health, age, occupation, and habits of the policy-holder.
  • Premium Allocation Charges: This is the most common charge that is applicable in most policies. They are added to pay the marketing and underwriting expenses. Premium Allocation Charges will be paid before one begins to invest.
  • Policy Administration Charges: For the insurance company's administration and management services, they deduct a policy administration charge.

How to apply for a ULIP Investment Plan?

We hope that the information provided above could walk you through the ULIP investment’s essential details. You must now know the process through which you can decide whether getting a ULIP for you is beneficial, and if yes, how can you customize it to suit your needs. Read on to know the steps to follow to apply for a ULIP.

Step 1: Define your life goal. The first step before buying any insurance plan is to define why you need to buy it. Once you know the exact needs you need to address it in the future; you can assess the various plans available under ULIP.

Step 2: Go through the website of the insurance company and compare the various plans offered. You will need to consider your age, gender, occupation, and health history to decide the best one for you.

Step 3: After this, you will need to click on the plan and enter your details in the online form as required.

Step 4: Make sure you calculate the interest rate and returns you will get upon the plan's maturity. If you are satisfied, you can proceed and choose the premium and frequency of its payment.

Each family needs to ensure that they secure the future of their loved ones and that they are never in need of money if the family's breadwinner is not there to support them. The ULIP Investment can help you cover it all while also helping you to accumulate wealth.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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