Financial PlanULIP

5 Facts You Didn’t Know About ULIPs

Unit-Linked Insurance Plans (ULIPs) are a popular investment product. They are designed to serve two different purposes for an investor- investment and insurance. The product allows you to grow your wealth while having a life insurance cover. There are different types of ULIP policies available in the market for you to choose from. You can opt for an income fund where the money will be invested into debt assets, which have low or choose a balanced fund where the money is invested into both equity and debt instruments to keep the risk level between moderate to high. You need to make a decision based on your purpose of investment and your risk appetite. If you have a high-risk appetite, you can opt for large-cap and growth funds. The plans offer an insurance cover and market returns. The nominee on the plan will get an assured amount in case of death of the policyholder. It is important to understand what is ULIP policy and how it works before you opt for a plan. You need to study the plan in order to understand the risk associated with the same and the possibility of generation of returns.

Facts that you did not know about ULIPs

Flexibility to shift

 When you invest in a ULIP, you have the facility to switch the funds as per your preference. You can switch from one plan to another based on the market conditions and your investment criteria. However, you need to consider the risks associated with the shift before you make a decision. Ensure that you are making a switch, which will help earn higher returns. You can switch the funds by sending a request to your insurance provider. Moreover, you have the facility of switching to another asset class offered by your insurance company through the Internet. Most of the insurance providers offer free online switching up to a restricted number of switches but it also depends on the terms and condition of the plan, which you have chosen.

Extend the date of maturity

The amount you earn at the time of maturity is dependent on the market conditions. Hence, the best is to opt for a ULIP, which allows you to defer the date of maturity by deferment of the total maturity amount or in the form of installments. You still have the option of withdrawing the amount at any time you want to. When you can extend the maturity date, you have the option to reduce the losses in case the market is low. When you defer the date of maturity, you have the possibility of earning a higher return and withdrawing your amount when the market condition improves.

Choose the amount receivable on death

In the case of ULIPs, there is an option for you to choose how you want to receive the sum assured as the multiple of the annual premium paid by you. You can have the option of choosing the sum assured in the form of five times, seven times, or even 20 times of the annual premium depending on the terms of the policy. When your amount payable at the time of death is higher of your fund value and the sum assured, you can choose a higher sum assured in order to avail of a higher death cover. Hence, even if you have to pay a higher premium, you have the opportunity to choose a higher sum in case of an untimely death. It will provide for your family’s financial security in your absence.

The right sum assured for higher tax benefits

ULIPs allow you to enjoy a tax benefit for the premium paid by you. You can claim a tax deduction under Section 80C up to a limit of INR 1.5 lakh. In addition, the amount you receive at the time of maturity and the death claims are tax- free. However, in order to avail of the tax benefits, you need to ensure that the sum assured is at least ten times the annual premium.

ULIP charges

There are expenses incurred to run a scheme for you and the expenses are charged by a reduction in the number of units from your portfolio. These charges include policy administration charge, premium allocation charge, fund management charge, discontinuance charge, and so on. It is important that you understand the quantum and number of charges. Before you choose a plan, clarify about all the charges because they have the ability to affect your returns. In order to maximize your gain, you need to understand the policy carefully to refrain from attracting any unwanted expenses.

You must do a thorough research on the top performing ULIP funds available in the market and choose the one that fits your risk appetite and investment criteria. You need to keep in mind that your purpose is to avail of protection through an insurance cover while growing your wealth. Compare the ULIP performance of various funds over the years and choose a plan that has survived market turmoil. Your risk appetite and investment tenure will help you decide which ULIP policy is ideal for you. You need to keep in mind that ULIPs have a lock-in period and you will only be allowed partial withdrawals after the end of the minimum lock-in period of five years.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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