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ULIP Insurance
Is ULIP A Good Investment For Short Term Gains
The importance of saving and investing money is no news to anyone. Everyone knows investing to be one...
Read ArticleUnit Linked Insurance Plan, called ULIP for short, is an investment cum insurance setup that offers you the dual benefit of creating wealth along with a life cover to secure the future of your loved ones. This means you not just grow your money thru traditional wealth creation tools, but also get the benefits of a comprehensive life insurance. Thus, a ULIP investment can get you the maximum benefits for security against life's unexpected twists and turns.
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Flexibility of Premium Payment
Multiple Portfolio Management Options
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Option for partial withdrawals
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Flexibility of Premium Paying Term
Partial Withdrawals
Increase/Decrease of Sum Assured
Auto Funds Rebalancing
A ULIP plays as both an insurance policy and an investment avenue. A ULIP has a pre-decided death benefit, which is paid to the nominee in case the unfortunate happens. In addition, if the policy holder survives the term of the ULIP, they receive the maturity value of the ULIP, which is the amount generated by the ULIP investments in equity and debt funds.
While the maturity benefit is subject to market linked risks, the insurance cover under a ULIP remains fixed.
Unit Linked Insurance Plan or ULIP is an insurance-cum-investment plan that not only offers life coverage but also allows you to invest in several asset classes. Although, before investing in a Unit linked Insurance Plan, you need to know about the charges that you have to pay for the entire policy term. The structure/applicability of charge may differ from one insurer to other but here’re some of the most common ULIP charges and fees –
This is a fixed percentage that is reduced from the premium at a higher rate in the starting years of a policy. This fee is charged by the insurance company before allocating the policy. This includes charges such as initial and renewal expenses, medical expenses, etc.
Insurance companies impose policy administration charges that are deducted on a monthly basis. Such charges are imposed for managing the administration of your policy.
As the name suggests, fund management charges are imposed for managing your funds so that you earn potentially higher returns.
ULIPs provide partial withdrawal of funds that allows investors to withdraw money partially. Although, such withdrawals attract penalty charges.
These charges depend upon a number of factors such as age, amount of sum assured, etc. For instance, if you are buying a policy at the age of 25, then your mortality charge will be lower because life expectancy of a 25-year-old is higher as compared to that of a 50-year old individual. This charge will be deducted on a monthly basis.
Moving your investments from one fund to another is called switching in ULIPs. It allows investors to switch between funds every year on the basis of their performance and risk appetite. But, each switching would attract some charges depending on the insurance company’s charge structure.
These type of charges are levied on additional riders. For example, if you want to opt for a critical illness rider, you will have to pay extra charges.
Unit Linked Insurance Plan or ULIP is a one-stop option for those looking for a long-term investment instrument that offers both transparency and flexibility. Also, it’s a perfect choice for those looking for a cost-effective way to enter the investment market. ULIPs come with a range of fund options that help in meeting the investment needs of the policyholder. Besides, here’re few more reasons that show the need to buy a ULIP -
Unit Linked Insurance Plan or ULIP is a long-term investment instrument that helps you achieve your dreams in a robust and effective manner. Although, to make the most out of your Unit Linked Insurance Plan, you need to learn how to manage them wisely. You need to ensure that your returns are balanced out so that any loss caused by one asset class is covered by the other. Therefore, it minimizes the overall risk of your investments. Here are some tips that will help you manage ULIPs effectively –
Overall, ULIP is a market linked insurance plan. Keeping the market fluctuations in mind, you need to manage them properly in order to reduce risks and gain higher returns.
Like any other insurance, you need to pay a premium for unit linked insurance plan. In ULIPs, the insurance company deducts an amount of your premium towards life cover and the rest is invested in a number of qualified funds. Afterwards, you get returns based on the performance of funds you opted for. There are several investment options such as debt, equities, hybrid funds, etc., for you to choose from.
ULIP gives you the flexibility to switch to a different investment option. This can be useful if you do not have fixed financial goals and you want to shift from one fund to another.
It offers transparency. With ULIPs, you don't have to worry about the hidden changes or fees. All charges such as management of funds, policy administration, etc are disclosed upfront before you to buy the product.
ULIPs are efficient tax saving instruments. The premium that you pay towards the policy is exempt to deduction under section 80C of the Income Tax Act.
It is perfect for long term investment objectives. Before investing in ULIP plan, it is advisable to make a list of your long term financial goals that you want to fulfill through investment. Goals such as funding for your kid's higher education, purchasing a house, children marriage, etc.
| Investor Type | Types of ULIPs Suited |
|---|---|
| Risk-taking investor | If you have a high-risk appetite, then invest in equity instruments. They offer great returns, but also have high risk. |
| Risk-averse investor | If you have low-risk appetite, then invest in debt funds such If you have low-risk appetite, then invest in debt funds such as fixed income bonds, corporate bonds, etc. They offer less returns and risks associated to them are also low. |
| Moderate risk investor | If you are ready to take risk but not too much, then invest in balanced funds. Thus, lowering the risk factor. |
In order to choose the right ULIP, you need to keep these following factors in mind
This Percentage will give you a fair idea how many claims have been paid out by the insurance company. The higher the ratio, the better. Canara HSBC Life OBC has a claim settlement ratio of 97.18%.
Before investing in ULIPs, you must check the past performance of funds. You can check the performance of funds for a period of 5 years to get an idea of how they are performing.
You must be aware of your risk appetite. Knowing your risks will help you choose the type of fund you are opting for.
Many ULIPs offer investment strategies such as Flexibility between switching funds, multiple premium payments options, and lifecycle based investing. Look for ULIPs that offer the strategies most suited to your goals.
Before buying the plan, you must do some research work to know whether the insurance company is able to fulfill its claim in future. Higher the Solvency ratio better the company's ability to fulfill its liability .This will help you understand the company's capabilities to meet the need of customers.
You must know your risk appetite before investing in ULIP. This plan comes with wide range of funds to select from basis your needs and risk appetite. Those who are reluctant to take risks can invest most of their investment in debt funds while those who like to take risks can go for equities.
This investment cum insurance plan comes with a set of charges. Thus, before purchasing the policy, it is important for you to understand the following charges -
ULIPs offer you the flexibility to switch between the funds. While buying a ULIP investment, you must consider the cost of switch, ease of switch, and complimentary switches during the policy period.
ULIPs basically offer three types of payment options - single, limited, and regular. Therefore, compare and choose plan that you are comfortable with.
With ULIPs, you have the flexibility to select your fund as per your risk appetite. ULIPs come with a variety of funds to choose from. Investors with a low risk appetite can invest in debt funds while those with a high risk appetite can invest in equity funds.
ULIPs come with a lock-in-period of 5 years and offer good returns on investment over a long period of time.
There are three ways of making payments - single, limited, and regular payment options. Single payment option is a one-time investment where you are required to pay the premium amount as lump sum at the inception of the policy.
ULIPs also allow you to do partial withdrawals when you need it after completion of lock-in period.
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Titanium Plus Plan (Savings cum protection plan)
Premium Amount Details
| Premium Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual | Rs.1,25,000/- p.a. | No Limit |
| Monthly | Rs.16,667/- p.m. | |
| Single | Rs.1,25,000/- p.a. |
Premium Payment Term|Pay: Single Premium|Limited Pay: 5/7/10/15 Years|Regular Pay: Equal to Policy Term
Know MoreSmart Future Plan (Long Term Investment Plan)
Premium Amount Details
| Policy term | Payment Mode | |
|---|---|---|
| Annual. | Monthly | |
| 10 years | Rs 50,000 p.a. | Rs 5,000 p.m. |
| 15/20/25 years | Rs 25,000 p.a. | Rs 3,000 p.m. |
Premium Payment Term|You can select any premium paying term from 10 to 20 years
Know MoreSmart Goals Plan (Savings cum protection plan)
Option A
| Premium Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual | Rs 50,000/-p.a. | No Limit |
| Monthly | Rs 5,000/-p.m. |
Premium Payment Term|5 Years fixed
Option B
| Premium Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual | Rs 25,000/-p.a. | No Limit |
| Monthly | Rs 3,000/-p.m. |
Premium Payment Term|10 years to 25 years
Know MoreSmart Life Long Plan (Whole Life Plan)
Premium Payment Details
| Premium Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual | Rs 25,000/-p.a. | No Limit |
| Monthly | Rs 3,000/-p.m. |
Premium Payment Term|Minimum 10 years and maximum 99-Age at Entry years.
Know MoreSecure Bhavishya Plan (Unit Linked Pension Plan)
Premium Payment Term
| Minimum | Maximum | |
|---|---|---|
| Single Pay | One time premium only | No Limit |
| Limited Pay | 5 years | 34 years |
| Regular Pay | 10 years | Equal to the Policy Term |
Insure Smart Plan (Wealth Creation Plan)
Premium Payment Details
| Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual | Rs 50,000 | No Limit |
Premium Payment Term|5 Years(Fixed)
Know MoreFuture Smart Plan (Savings cum protection plan)
Premium Amount Details
| Policy term | Payment Mode | |
|---|---|---|
| Annual. | ||
| 10 years | Rs 50,000 p.a. | |
| 15/20/25 years | Rs 25,000 p.a. | |
Premium Payment Term|You can select any premium paying term from 10 to 20 years
Know MoreGrow Smart Plan (Whole Life ULIP)
Premium Payment Details
| Payment Mode | Minimum | Maximum |
|---|---|---|
| Annual Premium | Rs 25,000 | No Limit |
Minimum 10 years|Maximum 99 less age at entry years
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ULIPs had a heavy charge structure way back in 2008. However, IRDAI intervened and the cost of ULIPs have reduced significantly over the years. If you are refraining yourself from investing in ULIP due to high cost, you don’t have to worry now.
Under ULIPs, investors are allowed to choose funds based on their risk appetite. ULIPs come with several fund options such as debt and liquid funds for low-risk investors while equity funds for high and moderate risk investors.
Earlier, the lock-in-period was 3 years. But, post 2010, IRDA revised the guidelines and extended the lock-in-period from 3 years to 5 years. Now, ULIPs have a lock-in-period of 5 years.
ULIPs offer complete flexibility to the investors. It provides the flexibility to switch between funds based on your risk appetite. It also gives you the flexibility to partially withdraw money from your accumulated Fund Value before the policy matures.
ULIP is an ideal option for both your insurance and investment needs. It not just offers life cover but also provides investment options as well.
ULIPs offer maximum returns as compared to other investment options, if you choose wisely. It is one of the best investment options if you want to gain higher returns to fulfil your long-term goals.
| Factors To Decide | Example (20-30 words) |
|---|---|
| Current Income | At current income level of 5 Lakh per annum, opt for a life cover that provides coverage of Rs. 1 Crore. |
| Age | If your age is b/w 20-30 years, buy a life insurance cover of 15 times your annual income while if you are b/w 45-55 years, buy life insurance 10 times your annual income. |
| Financial Liability | Ensure your life coverage is enough to cover your financial liabilities like outstanding debts, mortgages, education loans, etc. |
| Inflation Rate | In 15 years, at 7% inflation rate, the value of Rs. 1 crore would whittle down to an equivalent of Rs. 33 lakh in present terms |
| Life Goals | Know your financial goals such as your child’s education, marriage, sustaining lifestyle, etc., while deciding on your life insurance coverage. |
1. Age – The age at which you are buying your life insurance is also an important factor. Buy life insurance when you are younger and choose to go with the maximum tenure possible.
2. Current Income – Your current annual income is one of the primary factors to decide your life insurance coverage. If you are young, it is ideal to opt for a life cover at least 20 times your annual income.
3. Liabilities – Your financial liabilities also play a major role in deciding your life insurance coverage. This includes debts, outstanding loans, etc. Thus, make sure, your life cover is large enough to cover all your financial liabilities.
4. Inflation rate – Your family’s needs vary at different stages of life. Thus, it is important to factor in the inflation rate while deciding on your life insurance coverage.
5. Life goals – It is quite important to know your financial goals while deciding on your life insurance coverage. This includes buying a house, your child’s education, marriage, etc.
Your current situation or financial liabilities determine how much insurance you require. The primary goal while deciding on your life coverage is to safeguard your family’s future, in case something unfortunate happens to you. You need to have sufficient life insurance cover so that your family does not have to compromise on their lifestyle even when you are not around.
Yes, ULIPs do offer tax benefits. In fact, it is one of the best tax saving instruments. As per Income Tax Act, 1961, you can save tax on your hard earned money by investing in unit linked insurance plan. The premium paid towards ULIP is allowed a tax deduction of up to 1.5 lacs under section 80C of the Income Tax Act.
If you want to enjoy the triple benefits of life cover, good returns, and tax savings, then you must invest in ULIP. It's a great investment plan as compared to other investment options. In ULIP, the premium paid towards the policy is divided in two sections-Insurance and investment. Therefore, an individual investing in such plan will not just fetch good returns but will get life protection cover as well.
ULIP is one of the best market-linked investment options. It offers you the choice to enter capital market for a longer period of time. This savings cum protection plan is a mix of liquidity and security which makes it relatively safer, flexible, and fruitful investment option.
Knowing the multiple benefits ULIP offers, it is recommended to choose the best plan depending your age and objectives. Canara HSBC Oriental Bank of Commerce offers different ULIPs that are just perfect for you and will help you meet your financial goals. We offer a range of ULIP plans for you to enjoy the benefits of investment and life insurance protection at the same time.
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Read ArticleIn 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 -
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).
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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